On paper, mid-August should just be another slow week in the stock market… but I’m not buying that for a second!
This weekend, futures acted sporadically as gold had a flash crash of 5% on Sunday night when futures opened for trading at 6 p.m. EDT. The word on Wall Street is that a big hedge fund account had to dump $4 billion!
I find it super odd that the hedge fund had to quickly sell everything on a Sunday night, but who knows…
The key takeaway for traders from this Sunday night disaster is there are times when hedge funds are blindsided, causing a big sell-off to happen quickly.
And there’s a certain way events like this need to be handled. So let’s take a look at gold, as I know many traders have an interest in it.
But before that, full disclaimer: I don’t consider myself either a gold bug or particularly bearish. I mainly like to stay bullish when trading via gold mining stocks.
What Gold’s Flash Crash Means for the Stock Market
First thing’s first: Let’s answer the question about whether investors should buy gold’s dip or not right now?!
The short answer is NO! This gold chart looks terrible.
Gold is establishing a bearish pattern and is now trading below ALL of its moving averages. Normally, $1,700 should be an area it bounces off of but there’s a strong possibility it’ll break down lower.
It’s important to remember that gold was trading around $1,500 pre-pandemic, so it hasn’t moved around much in over a year. But as more gold investors get restless with their non-performing holding, you’ll see people begin to panic.
I’m just sitting here and waiting for that panic to hit at this point, but it’s not here yet. So in the meantime I’ll nibble on some trades between $1,500 and $1,600 an ounce.
But Sunday’s gold flash crash isn’t the only thing I wanted to discuss today.
Earnings to Watch This Week: AMC, COIN, EBAY and DIS
I’m interested to see what Coinbase Global Inc. (Nasdaq: COIN) reports for this quarter. As we know, Bitcoin sold off hard in the second quarter — falling from above $60,000 per coin to around$30,000.
The chart of COIN closely follows the price of Bitcoin, and the report will be an interesting way to see how vulnerable COIN’s business is to price decreases. My bet is the stock won’t fully reflect the risks currently on the market and will disappoint on earnings.
However, the price action should be wild given that Bitcoin is back in rally mode. Investors should prepare themselves to see any big sell-offs in COIN scooped up immediately.
And we can’t forget about the big economic numbers we have coming out this week!
The Consumer Price Index report for July of 2021 comes out on Wednesday. This will be a key inflation metric and, as we all know, inflation is all anyone wants to talk about.
In June we had a massive .9% month-over-month increase for the CPI for All Urban Consumers — which crushed estimates. If we get another hot number — anything .7% or higher — for month over month, then investors should look out below on stocks and watch yields rip higher.
The Federal Reserve — which used 2% as an average inflation target for the entire year — will have a hard time explaining how 1.5% in two months is OK!
Be sure to share your thoughts about Sunday’s gold flash crash and this week’s earnings in the comments section below.
And as always, send any trading questions to jeff@joyofthetrade.com and stay ahead of the markets, especially these choppy ones, by subscribing to our YouTube channel.
