Markets Summary
It has been very interesting to see how the markets have traded in the first few months of 2019, and I think it is fair to say that many people will have been surprised by just how high they have gone.
After crashing in November and December to panic-inducing lows, the Dow Jones has staged a remarkable turnaround, and is now just over 1000 points off its all time high at the time of writing.
It wasn’t long ago that the Dow Jones was trading as low as 21,500, and everyone was predicting it would go much lower, but it is currently up to 25,890 and the strong upward trend is showing no signs that it is potentially coming to an end.
The same can be said for the FTSE 100. It was trading between 6600 and 6800 for quite a long time towards the end of last year, and some experts were predicting that it would fall to around 6000, but it is now trading above 7200, and could continue to edge higher throughout 2019.
Normally with such strong stock markets around the world, you might expect that the price of gold would have dropped because people naturally tend to sell some of their gold and invest the proceeds into stocks when the markets are rising. However this hasn’t happened at all, and the price of gold has actually risen strongly above the previous resistance level of $1300.
Finally, there is one other market that has risen strongly in recent weeks, and that’s the oil market. The price of both Brent crude and US crude oil has risen sharply, and they currently stand at $66.60 and $56.45 respectively.
Time To Short These Markets?
The question many traders are now asking themselves is; is this a good time to open short positions on some of these markets?
My own view is that all of these markets are now looking seriously overbought according to many different indicators, but that doesn’t necessarily mean that this is a good time to go short.
They were also looking overbought one week ago, and indeed two weeks ago, for example, but have still continued to move higher.
Closing Comments
The point I really want to get across is that trying to call the top of a strong rising market is a very dangerous game. Yes you may get lucky at times when all your technical indicators seem to suggest that it is set to reverse, but the price can easily continue to go higher and potentially take out your stop loss if you are not careful.
I myself have been wrong with some of my predictions on this blog because I thought the Dow Jones and US crude would both run into resistance and move lower, but the price of both of these markets just went straight through these resistance levels.
So it is often a much better strategy to find a strategy that trades in the same direction as the prevailing trend when the markets are rising so strongly. Of course these markets can’t keep on rising forever and there will eventually be a reversal, but trying to predict when this will occur is never easy.
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