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Current Volatility Creates Tough Situation for Stocks

The October minutes from the Federal Reserve meeting reveal that they are getting closer to raising interest rates. With current events out of Europe, and the U.S. economy showing extreme volatility already, the Fed’s seeming inability to make decision is hurting the stock market’s ability to make actual progress.

Experts on Wall Street agree that there is a more than 65 percent chance that the Fed will raise rates in December, but even though this has been hinted at yet again, the same hints were being made for a September rate hike. And then an October rate hike. With crisis in Europe right now, it’s very possible that yet another month will go by with no rising interest rates. Smaller events have led to postponing already this year. Peter Schiff, one of the leading authorities that is making claims like this, gained fame back before the 2008 financial crisis for accurately predicting that banks had overextended themselves and that issues were likely to ensue. Whether or not he’s right about the Fed’s current course of action will remain to be seen.

The issue is that cheap money to businesses is propping up prices, and this has led to many companies that should not see success going up and up in price. And the QE policy in Europe has accomplished much of the same in the euro zone. What we see now, many analysts believe, is company after company having their stock prices go up, but without a legitimate reason for this to happen. As investors begin to approach their moves with more caution, this is beginning to show through in prices in the form of volatility. It has made investing a very precarious activity.

It’s also making short term trading very difficult. Yes, there are technical indicators out there that make the process a little easier, but lately these are more educated guesses than actual predictions. Because investors and traders are so cautious right now, the usual predictability that assets have has declined. This is especially true of stocks and the indices that measure them, but there is also carryover to currency pairs and commodities. For binary options traders, these are the places that attention should currently be paid, at least until there is less volatility and a greater sense of normalcy returns to the stock market.

For those interested in long term investing in stocks, there are still opportunities for making a profit. When volatility is extreme, price lows are much more common, and they can even occur in companies that they shouldn’t ever happen in. When price wild swings occur, even strong companies can have their price drop because of investor apprehension. Taking advantage of this is more likely to result in profits than uneducated guesses based upon charts and numbers. This is also a viable strategy for long term binary options trading, especially if you are focusing on trades a few months or more in the future. Because it’s close to the end of the year now, many binary options brokers do not have a lot of trades that extend for long term periods, though, which weakens traders’ abilities to take advantage of this fact. Still, the ultra short term trades that many traders like to use are almost a complete guess right now in stocks, and this will only lead to a loss thanks to the discrepancy between the losses (100 percent) and the gains (around 72 percent) offered on trades of 60 seconds or less. Given a large enough sample size, unless you are a long term profitable traders with these, you will go broke. For now, stock trading should focus on a longer timeframe before expiry.

Updated: December 5, 2015 — 8:29 pm
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