Edge Forex

Tag: inflation

  • Bonds as a Stock Forecasting Tool: Four Key Yield Curve Regimes

    Bonds as a Stock Forecasting Tool: Four Key Yield Curve Regimes

    Because it can accurately anticipate output growth, inflation, and interest rates – three crucial factors for the overall economy and financial assets – the bond market is sometimes referred to as the “smart money” on Wall Street by traders. Based on this belief, investors sometimes pay close attention to bonds and the peaks and valleys of the yield curve to learn more about future economic performance and developing trends. Given how interconnected the financial system is, signals from one market might sometimes serve as an indication, even a leading one, and a forecasting tool for another that is slower or less effective at integrating new data.

    This article will examine the Treasury market to see how the yield curve’s shape and slope might provide hints about anticipated future equity returns and sector leadership by revealing information about the economic cycle. Before starting, it is vital to familiarise yourself with critical ideas.

    CURVE FOR TREASURY YIELD

    The Treasury yield curve is a graphical depiction that shows the interest rates on government bonds for all maturities, from overnight to 30 years, across several tenors. It illustrates an investor’s return by lending money to the U.S. government for a certain time. The asset yield is shown on the graph’s vertical axis, and the borrowing term is shown on the graph’s horizontal axis.

    Longer-term debt instruments often provide better yields than short-dated ones to offset additional risks like inflation and length. Therefore the curve may assume various forms in healthy settings (see figure below). For instance, the yield on a 30-year government bond is often more significant than that of a 10-year note, which should be higher than that of a 2-year Treasury note.

    The U.S. Yield Curve
    bond

    Even though it’s uncommon, there are situations when long-term security may provide a lower return than a short-term investment, resulting in a term structure of interest rates that slopes downward. When this happens, the yield curve is said to have inverted.

    The yield curve often inverts when the central bank raises short-term rates to avoid overheating to the point where it restricts activity and clouds the outlook for the economy. Investors wager that interest rates will need to decrease in the future to handle a potential downturn and disinflation when monetary policy becomes too restrictive. These presumptions lead to a decline in longer-dated bond rates and an increase in short-term bond rates, which inverts the Treasury curve.

    Inversions have historically often predicted approaching recessions. An economic downturn has followed each 3-month to 10-year or 3m10y yield curve inversion since the end of World War II.

    U.S. Yield Curve inverted
    Bond

    Traders often compare two rates at two different maturities and refer to their spread, defined in basis points, as “the yield curve” instead of concentrating on the Treasury market’s overall interest rate term structure. The following curves are the ones that are most commonly discussed and examined in financial media:

    • The 2-year/10-year curve sometimes referred to as the twos-tens or 2y10y: is the spread between the yield on 10-year Treasury bonds and the yield on 2-year Treasury notes.
    • The 3-month/10-year curve sometimes referred to as the 3m10y or three-month-tens curve: The yield differential between the 10-year Treasury bond and the 3-month Treasury bill is shown by this curve.
    CURVES FOR 2S10S AND 3M10S SINCE 2020

    Modifications to the yield curve

    The difference between long-term and short-term Treasury rates will fluctuate with changes in economic activity, inflation expectations, monetary policy outlook, and liquidity circumstances. The curve is considered to steepen when the spread widens, and the gap between long- and short-dated rates grows. On the other hand, the yield curve is considered to flatten when the term spreads contract.

    The term spread may shift for various causes, such as the long-term yield curve flattening or the short-term rate curve increasing (or a combination of both). The Treasury curve’s erratic movements may be used to create engaging cross-market trading strategies since they are a reliable real-time business cycle predictor. For instance, savvy stock investors often assess the yield curve’s form and slope when constructing an equity portfolio that aims to capitalize on a developing economic trend.

    THE FOUR DIFFERENT CURVES TO UNDERSTAND

    The four basic yield curve regimes and how they may be used to forecast sector leadership in the equities market are summarised below.

    • Bear steepening: The yield curve becomes steeper when long-term rates rise faster than short-term rates. This risk-on atmosphere often develops during a recession in the early stages of the economic cycle after the central bank has lowered the benchmark rate and indicated it would do so indefinitely to promote recovery. A reflationary environment is created by accommodating monetary policy, which raises long-term rates set by the market as future inflation and economic activity forecasts improve. Because of the more robust profits growth, smart money views this environment as positive for most equities, particularly those in cyclical industries. Materials, industrials, and consumer discretionary equities often see substantial rallies during bear steepening. Due to expanding net interest margins, banks (financials), which depend on short-term and long-term lending, also fare well during these times.
    • Bear flattener: Short maturity rates increase faster than their long-term equivalent, compressing term spreads and flattening the curve. Before the Fed hiked the federal funds rate to tame inflationary pressures, this regime operated throughout the expansion period (the front end of the turn is primarily influenced by monetary policy expectations determined by the central bank). While there may be spikes in volatility, the atmosphere for equities is still one of risk-taking amid solid results. It promotes a favorable environment for technology, energy, and real estate.
    • Bull steepening: The curve becomes steeper when short-term rates decline more quickly than long-term yields. This regime often manifests early in a recession when the outlook is very hazy, and the central bank is lowering short-term rates to boost the economy. It is risk-averse. Overall, equities suffer during bullish times; however, defensive industries like utilities and staples often outperform the market while technology and materials struggle.
    • Bull flattener: The Treasury curve flattens when long-term yields decline more quickly than short-dated rates. Moves on the back end, primarily driven by market factors in the face of declining long-term inflation forecasts and a worsening GDP outlook, are what is causing the gap to decrease. Late in the economic cycle, when investors start pricing in a potential recession and disinflation, this regime, which heralds volatility in the financial markets, bursts into action. Equity investors start to skew their portfolios toward better quality investments as a buffer against growing volatility while the bull market is in full swing. While the cyclical struggle with declining corporate results for economically sensitive industries, staples and utilities take the lead.

    Note: The bond price movement is meant by the “bull” and “bear” signifiers that characterize each regime. For instance, short-dated Treasuries are sold in a bear flattener, causing their values to decline since short-term rates are rising more quickly than long-term ones (bearish for price in this example). Remember that bond yields and prices fluctuate in opposite directions.

    The outlook for monetary policy, output growth projections, and inflation expectations significantly impact how the U.S. Treasury curve will appear. The yield curve is an excellent leading predictor of the economic cycle because it captures key elements of the economy’s present and future. Based on this assumption, equity investors often use the curve’s form as a forecasting tool to estimate the stock market’s direction. However, this technique shouldn’t be used in isolation since bonds may sometimes provide erroneous signals, just like any instrument. To that end, combining top-down and bottom-up analyses is often better when building a balanced, diversified, and less volatile portfolio.

  • 4 Global Market Updates- 4 August, 2022

    4 Global Market Updates- 4 August, 2022

    In this article, we have covered the highlights of global market news about the US Dollar Index, EUR/GBP, USD/JPY and Australia’s trade surplus.
    The US Dollar Index seems cautious at about 106.30.

    As measured by the US Dollar Index (DXY), the dollar continues to trade cautiously at 106.30 against a background of rising US yields and shifting risk appetite trends.

    The dollar’s recovery has slowed down in reaction to recent hawkish remarks from FOMC members Daly, Bullard, and Mester, who justified more tightening in the coming months. This development is also consistent with the rise in US rates throughout the curve, notably in the short end.

    EUR/GBP Price Analysis: Below 0.8440, bears are in control and the BOE is watching

    As buyers make another effort to overcome the prior support level from March on early Thursday morning in Europe, bids on the EUR/GBP increase to 0.8310. Nevertheless, on Tuesday, the cross-currency pair fell to its lowest levels since April 22 before rebounding off 0.8340.

    However, the pair’s most recent rebound draws insights from the RSI circumstances that were almost oversold. The quotation is still below the support line that later turned into resistance around 0.8380. The weekly resistance line, located at 0.8385, presents another obstacle for short-term EUR/GBP investors.

    Even if the pair moves beyond 0.8385, the EUR/GBP bulls may face resistance from the 200-DMA level and the 61.8 percent Fibonacci retracement of the March-June upswing, which are located respectively at 0.8400 and 0.8440.

    The onus then shifts to the buyer, and prices may increase in the direction of the swing high from late July, which was about 0.8585.

    EUR/GBP

    On the other hand, the recent bottom at 0.8340 limits the EUR/GBP prices’ immediate downside during the recent decline. The next move seems to go southward toward the low of 0.8295 on March 23.

    The possibility of seeing a further decline toward the annual low set in March, at 0.8200, cannot be ruled out if EUR/GBP continues bearish above 0.8295.

    USD/JPY is likely to remain range-bound in the short future – UOB

    The resistance around 134.60 is unlikely to be threatened by the overbought circumstances, according to the 24-hour view: “We anticipated USD to ‘move further’ yesterday. Our prediction came true, as USD increased to 134.54 before abruptly falling again. The upward trend has paused, and the USD is not expected to continue. For now, it’s more probable that the USD will fluctuate between 133.10 and 134.50.

    Within the next three weeks: “Our position has not changed from yesterday (03 Aug, spot at 133.50). The current USD weakness is over, as was indicated. The USD is anticipated to trade in the range of 131.30 and 135.60 for the time being as the recent price movements are likely the beginning of a wide consolidation period.

    Australia’s trade surplus has reached a new high, according to Westpac.

    “The jump in exports helped the surplus rise to $17.7 billion in June.”

    The $14.6 billion result for Westpac and the $14.0 billion market median in June was beyond forecasts.

    Note that the May results were reduced from $16.0 billion to $15.0 billion, nevertheless setting a new record high before the June result.

    Off a very low basis, “export profits rose during the June quarter, indicating a mix of stronger prices and a welcome increase in volumes.”

    “In April, exports increased by 5.4 percent. In May, they increased by 8.9 percent. In June, they increased by 5.1 percent. We had predicted that the export market would stabilise in June.

    The growth of 0.7 percent on the import side “fell short of our expectations, an anticipated 3.2 percent,” according to the report.

    Weakness was mostly caused by a decrease in civil aircraft as well as a softening in automotive imports, which are still being hampered by supply chain problems.

    Please click here for the Market News Updates from 3 Aug, 2022.

  • 4 Global Market Updates- 3 August, 2022

    4 Global Market Updates- 3 August, 2022

    In this article, we have covered the highlights of global market news about the Crude Oil Price, GBP/USD, USD/CAD and EUR/USD.
    Crude Oil Futures: More consolidation is on the way

    According to CME Group advanced prints, open interest in crude oil futures markets fell by roughly 8.2K on Tuesday after three consecutive daily gains. Following two daily increases in a row, volume fell by roughly 108.7K contracts.

    On Tuesday, the WTI recorded an indecisive session amid declining open interest and volume, indicating the persistence of the range-bound theme in the very near term. So far, the commodity has been supported by a price of $90.00 per barrel.

    GBP/USD is now consolidating – UOB

    “We said yesterday that ‘the quick climb looks to be continuing, although there is headroom for GBP to get above 1.2300 before the possibility of a retreat increases.’ We were not expecting such a steep and quick decrease to 1.2158. (high has been 1.2279). The pound is losing ground and might fall below 1.2100. For the time being, the next support level at 1.2040 is not likely to be challenged. The resistance level is 1.2195, followed by 1.2225.”

    “The pound fell rapidly to a low of 1.2158 yesterday.” While our strong support’ at 1.2135 remains in place, the upward impetus has faded. In other words, the GBP surge that began late last week has abruptly ended. GBP looks to have entered a consolidation phase and is expected to trade around the 1.2040/1.2255 area for the time being.”

    USD/CAD bears test 1.2850 as oil prices surge ahead of the OPEC meeting, with attention focused on US data and Taiwan.

    USD/CAD accepts offers to repeat the intraday low around 1.2850 ahead of the European session on Wednesday. The Loonie pair gained ground over the past two days before backtracking from its weekly high of 1.2891. On the other hand, the retreat movements are influenced by the lately higher prices of Canada’s principal export commodity, WTI crude oil. The US dollar’s fall amid cautious optimism ahead of crucial US data also keeps USD/CAD prices high.

    oil

    Nonetheless, WTI crude oil prices broke a two-day downtrend, rising 0.63 percent intraday near $93.75, amid growing expectations of no significant change in oil producers’ policy during today’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, known as OPEC+.

    EUR/USD maintains its consolidative tone – UOB

    “We underlined yesterday that ‘upward momentum is starting to develop, but it remains to be seen whether EUR can breach the significant barrier above 1.0300.” As the EUR dropped quickly from 1.0293, the key barrier of 1.0300 remained intact (the low was 1.0162). The quick decline may continue, although it is unlikely to breach the key support around 1.0100. (there is another support at 1.0130). A break of 1.0210 (minor resistance is at 1.0195) on the upside would signal that the present bearish pressure has decreased.”

    “We emphasized yesterday that the risk for the EUR is turning to the upside, but EUR must first cross 1.0300 before a prolonged increase is conceivable.” EUR failed to break beyond 1.0300, falling quickly from 1.0293. The surge in upward momentum faded shortly. The price activity suggests that the EUR is consolidating and will likely trade between 1.0100 and 1.0260. The EUR must break through the main support level of 1.0100 before conceiving a significant drop.”

    Please click here for the Market News Updates from 2 Aug, 2022.

  • The 5 Most Effective Candlestick Patterns

    The 5 Most Effective Candlestick Patterns

    A specialized technique known as a candlestick chart condenses data from many periods into a single price bar. They are thus more valuable than conventional open-high, low-close bars or straight lines that link closing prices. Candlestick patterns forecast price movement. This colorful technical instrument, which goes back to Japanese rice merchants in the 18th century, is made more interesting by proper color coding.

    In his well-known 1991 book, Japanese Candlestick Charting Techniques, Steve Nison introduced candlestick patterns to the West. These patterns, which go by colorful names like bearish dark cloud cover, evening star, and three black crows, are now well recognized by traders. Numerous long- and short-side trading systems have also used single bar patterns like the Doji and hammer.

    Reliable Candlestick Patterns

    Not every candlestick pattern performs as well as others. Because of the algorithms used by hedge funds to examine them, their enormous popularity has reduced their dependability. These well-funded players compete with regular investors and conventional fund managers using technical analysis tactics from well-known literature with lightning-fast execution.

    In other words, hedge fund managers use algorithms to lure in traders seeking outcomes with high probabilities of being bullish or negative. Nevertheless, consistent patterns keep emerging, providing both short- and long-term profit potential.

    Following are five candlestick patterns that excel in predicting price direction and momentum. Each one functions to forecast higher or lower prices in the context of neighboring price bars. They also have two time-sensitive aspects:

    • Whether an intraday, daily, weekly, or monthly chart is being examined, it can only operate inside its parameters.
    • Their power quickly declines three to five bars after the pattern is finished.
    Performance of Candlestick

    In his 2008 book, “Encyclopedia of Candlestick Charts,” Thomas Bulkowski created performance rankings for candlestick patterns used in this research.

    He provides data for two categories of anticipated pattern outcomes:

    • Reversal Candlestick patterns foretell a shift in price movement.
    • Continuation patterns indicate that the present price trend will continue.

    The black candlestick in the images below indicates a closing print lower than the opening print. In contrast, the hollow white candlestick indicates a closing print higher than the beginning print.

    STRIKES IN 3 LINES

    candlestick pattern
    Source: Investopedia

    The bullish three-line strike reversal pattern forms three black candles inside a downtrend. The intrabar low is reached by each bar, which also records a lower low. Although the fourth bar reverses in a wide-range outer bar that closes above the high of the series’ opening candle, it opens significantly lower. The opening print likewise indicates the low of the fourth bar. Bulkowski estimates that this reversal has an 83 percent accuracy rate in predicting rising prices.

    2 BLACK GAPPING

    candlestick pattern
    Source: Investopedia

    After a significant uptrend peak, the bearish two-black gapping continuation pattern develops, with a gap down that results in two black bars with lower lows. According to this pattern, the drop will likely continue to even lower lows before beginning to decline on a larger scale. Bulkowski claims this pattern has a 68 percent accuracy rate in predicting decreased pricing.

    THREE CROWS IN BLACK

    candlestick pattern
    Source: Investopedia

    Three black bars with lower lows close to intrabar lows form the bearish three black crows reversal pattern, which begins at or around an uptrend’s top. According to this pattern, the drop will likely continue to even lower lows before beginning to decline on a larger scale. To prevent buyers from initiating momentum plays, the most bearish variant begins at a new high (point A on the chart). Bulkowski claims this pattern has a 78 percent accuracy rate in predicting decreased pricing.

    EVENING STAR

    candlestick pattern
    Source: Investopedia

    A towering white bar that leads an uptrend to a new high serves as the foundation for the bearish evening star reversal pattern. The following bar sees the market gap higher, but no new buyers show up, resulting in a candlestick with a restricted range. The pattern is completed by a gap down on the third bar and foretells that the slide will go on to even lower lows, perhaps igniting a larger-scale downturn. Bulkowski claims this pattern has a 72% accuracy rate in predicting decreased pricing.

    ABANDONED BABY

    candlestick pattern
    Source: Investopedia

    The bullish abandoned baby reversal pattern develops at the bottom of a downtrend after a string of black candles that have printed lower lows. The market gaps are lower on the subsequent bar, but no new sellers materialize, resulting in a narrow range doji candlestick with identical starting and closing price prints. The pattern is finished by a bullish gap on the third bar, which foretells that the recovery will go on to even higher highs, perhaps igniting a larger-scale upswing. This pattern accurately forecasts increased prices by 49.73 percent, according to Bulkowski.

    How Accurate Is Trading With Candlesticks?

    Candlestick trading may be dependable, but the Candlestick patterns shown shouldn’t be taken as definitive directional movement indications. The candles are just trailing indications of market conditions as timeframes change and consolidate as each candle’s period lengthens. As a result, all the knowledge learned from reading candlesticks is outdated, and basing bets on patterns on hypothetical price movement based on historical patterns and other indicators is risky. The relative strength index (RSI) and moving average convergence divergence are two standard supplemental trading tools (MACD).

    How Are Candlesticks Read?

    Candlestick reading is relatively easy. Each candle’s height is defined by its opening and closing prices for the period it symbolizes (typically 15 minutes, 30 minutes, one hour, four hours, one day, one week, and one month). Each candle’s wick or tail and the single line above and below the box show the candle’s peak and lowest prices, but not its closing price. Said, this is the highest position that the candle has ever reached. The price closed lower if the body is solid, black, or red. White or green candles that are hollow indicate that the price closed higher than it did at the beginning of the candle.

    How Many Different Candlestick Patterns Exist?

    Depending on who is asking, the response will change. While conservative traders who only trade on the most well-known patterns would claim there are approximately 25, some who concentrate on less common candlestick patterns may claim over 50. The spectrum of candlestick designs generally acknowledged is between 35 and 42.

    Conclusion

    Market participants are drawn to candlestick patterns, but many of the reversal and continuation signals that these patterns emanate don’t consistently function in the current technological world. Thankfully, data from Thomas Bulkowski demonstrates extraordinary accuracy for a small subset of these patterns, providing traders with helpful buy and sell recommendations.

  • Gold price forecast: XAU/USD hits multi-week high on USD weakening

    Gold price forecast: XAU/USD hits multi-week high on USD weakening

    On Monday, gold recovered some of its early losses and went positive for the fourth day in a row. During the first part of Monday’s European session, the momentum drove the gold price to a new three-and-a-half-week high, circling around $1,772-$1,773. The post-FOMC selling bias in the US dollar has not faded on the first trading day of the new week, which is turning out to be a significant element that is to the advantage of the commodity priced in dollars.

    The Federal Reserve sounded less hawkish last week and signaled that it might moderate the pace of the policy tightening campaign at some time in the future in response to evidence of a downturn in the economy. In addition, the dismal publication of the Advance US Q2 GDP data confirmed a technical recession. It encouraged predictions that the Fed would not boost interest rates as rapidly as prior forecasts indicated. Because of this, the US Dollar is subjected to some follow-through negative pressure for the fourth day in a row.

    In addition to the consistent selling of USD, the prevailing cautious attitude surrounding the equities markets further supports the safe-haven commodity of gold. The recent upbeat surge in the markets seems to be losing momentum as concerns about a worldwide economic slowdown intensify. Following the dismal announcement of the official Chinese Manufacturing PMI for July, which fell back into the contraction zone, the fears have again come to the surface. This results in investors’ desire for perceived riskier assets being muted.

    GOLD

    However, it is yet unknown if bulls will be able to capitalize on the rise or choose to take some winnings off the table. The potential for a goodish return in the rates on US Treasury bonds might limit losses for the USD and contain gains for the non-yielding gold. A possible course of action for investors is to hold off on making risky bets in the run-up to this week’s crucial central bank event risks. Tuesday is the day that the Reserve Bank of Australia (RBA) is expected to reveal its policy decision, and Thursday is when the Bank of England is due to convene.

    In addition, important US macro data planned to be released at the beginning of each new month will also play a vital role in defining the next leg of a directional move for gold. The publication of the ISM Manufacturing PMI on Monday sets off a week that will be rather eventful for the economy of the United States. This, in conjunction with the rates on US bonds, will affect the USD and offer some impetus to spot prices. The monthly employment report (NFP) released in the United States on Friday will continue to be the primary focus.

  • HOW TO DRAW FOREX TREND LINES?

    HOW TO DRAW FOREX TREND LINES?

    One of the most popular types of technical analysis is trendlines. However, are you sketching them properly? If not, allow me to demonstrate.

    Many different types of technical analysis are used to study the markets. The application of support and resistance is, by far, the most typical.

    Trend Lines: What Are They?

    On a chart, a trend line is a line that is drawn between two levels to represent support or resistance, depending on the trend’s direction. The more often a price abides by a specific trend line, the more critical that trendline is.

    Based on these trend lines, we can quickly identify possible pockets of higher supply and demand that may help the market go downward or upward.

    How are trend lines drawn?

    In my years of trading and instructing, I’ve seen a lot of misunderstandings about the precise location and placement of trend lines. In this area, there are two schools of thought:

    • You may create a trendline by connecting the highs and lows of a particular candle.

    or

    • They may be deducted from the final price.

    The key is to remain consistent in your approach, so you can either do one or the other.

    Drawing a trendline from the highest closing price of one candle to the higher candle and trying to compel them to match the market is pointless. You’ll likely get some false trade signals as a result of this.

    The direction of the trend, from where the price has been to where it is heading, should be considered while drawing trend lines.

    Let’s examine the trend line in the chart below:

    trendline
    Source: Forex Signals

    The trend line will be positioned below the price in an upward market, functioning as support.

    The trendline will be located where the market price is in a downtrending market, functioning as resistance.

    How should the trend line be placed?

    One technique is to align the trend lines with the extreme highs and lows of a particular candle as measured by its wicks.

    The price is now quite far from where that specific trendline is drawn, which is the only issue. The same holds if you are projecting a market that is declining.

    The closing price method is the alternative strategy. Using the line graph, the price will trade much more closely to the trend line, which you can see on the candlesticks with ease.

    How do you trade using trend lines?

    First off, trendlines established on a long-term chart using the closing price are more accurate and dependable. It might be used on many kinds of charts and for a breakout.

    Second, trend lines may be utilized to create dynamic support and resistance levels based on recent price movements. The support level will be the uptrend line, and the resistance level will be the downtrend line.

    Price movement might either break through the trend line and create a reversal or bounce off the trend line and continue the trend.

    The price won’t always bounce back precisely from the moving average since these trend lines are like regular support and resistance lines.

    The next move should see prices move toward the break after the level of resistance or support has been breached. A fake breakout will occur if prices break and then fail to go forward quickly.

    Trendlines may also be significant or minor, much as with support and resistance.

    Summary:
    • A line drawn between two levels on a chart to represent support or resistance is known as a trend line.
    • The most trustworthy trend lines will always be produced at more significant periods.
    • NEVER try to shoehorn trend lines into a market by drawing them.
    • Trend lines may be used as dynamic levels of support and resistance.
  • What Is A Bear Market? Is It A Good Time To Invest?

    What Is A Bear Market? Is It A Good Time To Invest?

    What does “Bear Market” mean?

    A bear market is characterized by an asset price decrease of at least 20 percent from recent highs. Clearly, these are hardly favorable circumstances, but fighting back might be risky.

    Here, we will discuss eight essential investing methods and mentalities that can help you remain cool and “play dead” while the stock market eats into your gains.

    Bear Market Strategies

    Keep Your Fears Under Control

    Wall Street has an ancient saying: “The Dow climbs a wall of fear.” In other words, the Dow has continued to increase throughout time despite economic problems, terrorism, and numerous other catastrophes. Always attempt to separate your emotions from your investing decision-making process. A few years from now, what appears like a great global calamity now may be regarded as little more than a blip on the radar screen. Remember that fear is an emotion that may impair logical decision-making. Keep your cool and continue!

    Invest Using Dollar Cost Averaging

    The most essential thing to remember during an economic slowdown is that negative years on the stock market are common; they are a natural component of the business cycle. If you are a long-term investor (with a time horizon of 10 years or more), dollar-cost averaging is one of your options (DCA). By acquiring shares regardless of price, you get shares at a discount while the market is down. Your cost will “average down” over time, resulting in a better total entry price for your shares.

    Act Dead

    During a bear market, bears dominate and bulls have no chance. According to an ancient proverb, the best course of action during a bear market is to pretend dead, just as you would if you saw a genuine grizzly bear in the woods. Fighting back would be very risky. By remaining cool and avoiding unexpected movements, you will avoid becoming a bear’s meal. Playing dead in financial terms refers to allocating a greater proportion of your portfolio to money market products, such as certificates of deposit (CDs), U.S. Treasury bills, and other assets with high liquidity and short maturities.

    Diversify

    Diversification is allocating a portion of your portfolio to stocks, bonds, cash, and other assets. The manner in which you divide your portfolio depends on your risk tolerance, time horizon, objectives, etc. Every investor’s circumstances are unique. A smart asset allocation plan will enable you to avoid the potentially harmful consequences of putting all of your eggs in one basket.

    Never invest more money than you can afford to lose.

    Investing is vital, but so are eating and staying warm. It is undesirable to invest short-term cash (such as money for the mortgage or groceries) in the stock market. As a general rule, investors should not invest in stocks unless they have a five-year or longer investment horizon, and they should never invest money that they cannot afford to lose. Bear markets and even slight market dips may be exceedingly devastating.

    Consider Excellent Values

    Bear markets may provide excellent investment opportunities. The secret is knowing what you’re searching for. A bear market is characterised by equities that are beaten up, battered, and priced too low. Value investors such as Warren Buffett often consider bear markets as purchasing opportunities due to the fact that the prices of excellent firms fall in tandem with the valuations of inferior companies, resulting in very favourable valuations. Buffett often increases his holdings in some of his favourite firms during market downturns because he understands the market’s propensity to unfairly penalise even outstanding businesses.

    BEAR
    Take Stock in Defensive Industries

    In general, defensive or non-cyclical equities do better than the market as a whole during bear markets. These sorts of stocks provide a constant dividend and dependable profits regardless of the market’s condition. Companies that manufacture non-durable home goods, such as toothpaste, shampoo, and shaving cream, are examples of defensive sectors, since consumers will continue to use these products throughout difficult times.

     Prefer Short

    There are opportunities to benefit from price declines. One method is short selling, which involves borrowing shares of a business or ETF and selling them in the hope of buying them back at a cheaper price. Short trading involves margin balances and might result in damaging losses if markets rise and short positions are covered, resulting in further price compression. Put options are another alternative, which increase in value when prices decline and guarantee a minimum price at which to sell an asset, thereby setting a floor for your losses if you are hedging. To purchase puts, you must be able to trade options in your brokerage account.

    Inverse exchange-traded funds (ETFs) provide investors with the opportunity to benefit from the decrease of significant indexes or benchmarks, such as the Nasdaq 100. When the main market indexes decline, these funds increase, enabling you to benefit while the rest of the market declines. These options may be acquired simply from your brokerage account, unlike short selling or puts.

    Why Is It a Smart Move to Continue Investing During Bear Markets?

    The stock market and the economy tend to rise over the long term. Bear markets may disrupt this generally upward tendency, but these declines always finish and reverse, resulting in new highs. By investing during bad markets, you may develop stronger holdings by purchasing equities at cheaper prices (“on sale”).

    What is the frequency of bear markets?

    Historically, bear markets in the United States occur every 4.5 to 5 years on average.

    Why Is This Known as a Bear Market?

    There are many conflicting hypotheses about the origin of the names bull and bear markets. Bulls often attack by thrusting their horns forward, while bears typically strike by bringing their claws downward. According to a second explanation, the name “bear” derives from the early fur trade, in which bearskins were seen as especially dangerous goods in terms of price and durability.

    Which bear market was the most severe to date?

    The 1929-1932 decline, which coincided with the Great Depression, was the most severe and longest bear market ever.

  • A 4-Step Guide to Gold Trading

    A 4-Step Guide to Gold Trading

    Due to its unique position within the global economic and political systems, the gold market provides significant liquidity and exceptional potential to benefit in almost all circumstances, regardless of whether it acts like a bull or a bear. Even while many people decide to buy the metal directly, trading on the futures, equities, and options markets provides excellent leverage with manageable risk.

    Because they are unaware of the distinctive features of the global gold markets or the hidden hazards that might steal gains, market participants often fall short of maximizing the benefits of gold price changes.

    Although trading in the yellow metal is simple, it requires specialized knowledge. Incorporating these four strategic measures into daily trading routines can benefit experienced investors, but beginners should use caution. While waiting, explore until you are familiar with the nuances of these intricate marketplaces.

    1.) What Drives Gold Price

    Gold is one of the world’s oldest currencies and has a strong psychological hold on the financial industry. Yellow metal is a topic on which almost everyone has an opinion. Yet, gold itself only responds to a small number of price triggers. Each of these factors divides into two halves, creating a polarity that affects trend intensity, emotion, and volume:

    -Both inflation and deflation

    -Fear and greed

    -Demand and supply

    While market participants trade the yellow metal in response to one of these polarities when another is driving price movement, they run a higher risk. Say, for instance, that the global financial markets experience a selloff and gold has a significant rise. Many traders enter the market assuming that fear is driving up the price of the yellow metal and act on this assumption. Inflation may have been the cause of the stock’s drop, drawing a more technical audience that will aggressively sell against the gold surge.

    In the global markets, combinations of these factors are always at work, creating long-term themes that follow equally long uptrends and downtrends. For instance, the 2008 Federal Reserve (FOMC) economic stimulus initially had minimal impact on gold because market participants were preoccupied with the intense panic that followed the 2008 financial crisis.

    2.) Recognize the Crowd

    Numerous groups with various, often competing interests are drawn to gold. Gold collectors, known as “gold bugs,” are at the top of the heap, investing a disproportionate amount of family wealth in gold stocks, options, and futures. These long-term participants are seldom deterred by downward trends and ultimately push away less ideological participants.

    Additionally, institutional investors who purchase and sell gold alongside currencies and bonds in bilateral strategies known as “risk-on” and “risk-off” engage in significant hedging activity. Funds may quickly trade these combinations by assembling baskets of securities that balance safety and growth (risk-on and -off, respectively). They are particularly well-liked in marketplaces with much disagreement and low levels of usual public engagement.

    Gold

    3.) Study the long-term chart.

    Spend some time being intimately familiar with the gold chart, beginning with a long-term history that spans at least 100 years. The metal has not only established patterns that lasted for decades, but it has also slowly declined for extended periods, depriving gold bugs of earnings. This study pinpoints price levels that should be kept an eye on from a strategic perspective in the case and when the yellow metal makes a comeback to test them.

    The following slump persisted throughout the late 1990s before gold began its legendary rise, which reached its peak in February 2012 at $2,235 per ounce. Since then, there has been a gradual fall that has lost almost 600 points in four years. Even though it saw its highest quarterly rise in three decades in the first quarter of 2016, it is now priced at $1,882 per ounce as of May 2022.

    4.) Select Your Area

    Liquidity fluctuates with gold movements, rising or falling substantially during times of increased volatility and falling during times of relative calm. Due to far lower average participation rates than stock markets, this oscillation has a more decisive influence on the futures markets. The CME Group, based in Chicago, hasn’t significantly improved this equation in recent years despite adding new products.

    The 100-oz. contract, the 50-oz. mini contract, and the 10-oz. micro contract are the three principal gold futures that CME provides. These contracts were introduced in October 2010. The volume of trading for the micro contract exceeded 6.6 million in 2021, but only 26,000 for the mini and 1.2 million for the most significant contract.

    Although long-dated futures held for months are unaffected by this limited participation, trade execution in short-term positions is severely impacted, driving up slippage costs.

    Although the VanEck Vectors Gold Miners ETF (GDX) grinds through more significant daily percentage fluctuation than GLD, it comes with a higher risk due to the volatility of its association with the yellow metal. The influence of spot and futures prices is reduced by the extensive price hedging used by large mining firms, whose operations may also retain considerable holdings in other natural resources, such as silver and iron.

  • WHY IS IT IMPOSSIBLE TO FORGE AN NFT?

    WHY IS IT IMPOSSIBLE TO FORGE AN NFT?

    When an NFT (non-fungible token) is sold, the buyer is not acquiring the underlying digital picture. Instead, the buyer acquires a crypto token that serves as proof of ownership of the digital picture in question. 

    You might as well have given your money to a random individual on the internet if you didn’t have the valid token. This explains the entire premise of these tokens’ “non-fungibility.” Furthermore, because it is kept and accessible through the blockchain, its uniqueness can be easily verified, and no two identical non-fungible tokens may exist. 

    Having said that, many people have attempted to manufacture an NFT, but false or forged NFTs are easily identified since they can always be tracked back to the original creator’s address.

    You could try to counterfeit the token by making your own, but it would be far too simple to detect a fabrication. Why? Because it cannot be traced back to the address of the original developer. 

    NFT

    Can non-fungible tokens be readily replicated or falsified if they are in picture or video format? The straightforward answer is no, and here’s why. 

    All information about the original picture associated to the token is contained inside the metadata of each token. The connected picture cannot be switched since the metadata is unchangeable.

    Minting an NFT

    Assume you wish to acquire one of the well-known Bored Ape Yacht Club (BAYC) NFTs. BAYC is a collection of 10,000 ape NFTs, each with its own token on the Ethereum network. In addition, each ape has a unique Token ID that ranges from #1 to #10,000. 

    Back on subject, if you want to buy a BAYC NFT and make millions of strangers on the internet jealous, the first step is to create an account on OpenSea using a browser plug-in called Metamask. 

    To buy a BAYC token, you must first have an Ethereum wallet, which also serves as your “account number”. Once you pay for the token, the unique bored ape token is transferred to your Ethereum wallet, presuming you have enough ETH in your wallet.

    Having said that, anyone on the blockchain can simply verify that you hold the token because it is in your wallet. 

    To check if the BAYC token you want to buy is genuine, you can simply read the specifics of each NFT on OpenSea, including the “Contract Address” and the token ID. 

    Every NFT project on the Ethereum blockchain has a Contract Address, which is the wallet address of the original developer. For those who are interested, here is BAYC’s original address: 

    That being stated, if the item you wish to buy does not come from the Contact Address shown above, you are dealing with a forgery of a BAYC NFT. 

    Meanwhile, you may use the blockchain explorer “Etherscan” to determine whether an NFT is genuine.

  • The Fed’s bond-buying program will be slashed dramatically.

    #edgeforex #trading #market #stocks #money #usd #gold #forex #inflation #federal #reseve #fed #crypto #cryptocurrencies #december #bitcoin

    The Federal Reserve has given several signals that its ultra-easy policy, which it has followed since the beginning of the epidemic, is nearing to an end. In reaction to growing inflation, the government is taking tough economic measures. 

    For one thing, the central bank said that it will reduce its monthly bond purchases more quickly. 

    Starting in January, the Fed will buy $60 billion in bonds per month, half of what it was purchased before the November taper and $30 billion less than it was buying in December. In November, the Fed began tapering by $15 billion per month, then doubled it in December, and will continue to do so until 2022. 

    After that, the central bank intends to begin hiking interest rates, which were held constant at this week’s meeting, in late winter or early spring.

    According to projections presented on Wednesday, the Federal Reserve expects three rate rises in 2022, two the following year, and two more in 2024. 

    The actions by the Federal Open Market Committee, which were unanimously agreed, constitute a significant shift in policy, which had been the loosest in its 108-year existence. The impact of inflation was mentioned in the post-meeting statement. 

    The pandemic’s supply and demand mismatches, as well as the economy’s reopening, have continued to contribute to high inflation rates. 

    The committee raised its inflation forecast for 2021 from 4.2 percent to 5.3 percent for all categories, and from 3.7 percent to 4.4 percent excluding food and energy. The forecast for 2022 is currently 2.6 percent for headline and 2.7 percent for core, both higher than September. 

    At the same time, the unemployment rate for 2021 was reduced from 4.8 percent in September to 4.3 percent.

    “Job increases have been strong in recent months, and the unemployment rate has dropped significantly,” according to the statement. 

    Members, on the other hand, came out on the hawkish side of policy decisions, with a strong preference for rate rises. Only six of the 18 FOMC members expected fewer than three rate rises next year, according to the “dot plot” showing individual members’ rate predictions, and none expected rates to remain anchored at zero. 

    The committee lowered its growth prediction for this year, predicting GDP growth of 5.5 percent in 2021, down from 5.9 percent in September. Officials also changed their growth predictions for the next year, raising it to 4% from 3.8 percent in 2022 and dropping it to 2.2 percent from 2.5 percent in 2023.

    Both policies were implemented in reaction to rising inflation, which has reached its highest level in 39 years for consumer prices. In November, wholesale prices increased by 9.6%, the fastest increase on record, indicating that inflationary pressures are becoming more established and widespread. 

    Officials at the Federal Reserve have long emphasized that inflation is “transitory,” which Powell defines as unlikely to have a long-term impact on the economy. He and other central bankers, as well as Treasury Secretary Janet Yellen, have emphasized that prices are soaring as a result of pandemic-related variables such as unprecedented demand that has outstripped supply, but that this would eventually dissipate. 

    The asset acquisition taper began in November with a $10 billion drop in Treasury purchases and a $5 billion reduction in mortgage-backed securities purchases. The month’s purchases remained at $70 billion and $35 billion, respectively.

    The Fed’s $8.7 trillion balance sheet, on the other hand, grew by only $2 billion in the last four weeks, with Treasury holdings up to $52 billion and MBS down $23 billion. Treasury holdings have increased by $978 billion in the last year, while MBS holdings have increased by $567 billion. 

    The Fed would hasten the decrease of its assets under the revised parameters of a program known as quantitative easing until it is no longer adding to its portfolio. QE would finish in the spring, allowing the central bank to hike rates at any time after that. The Fed has stated that it is unlikely to raise rates while continuing to buy bonds at the same time, as the two actions would be incompatible.

    The Fed may therefore begin decreasing its balance sheet at any moment, either by selling securities outright or, more likely, by letting the proceeds of its present bond holdings to drain down at a predetermined rate each month.