Will there be a correction or will earnings save the day?
The markets are behaving very strangely for our taste these days. For example, gold is moving at the All Time High far too often - every other day. Israel's potential conflict with Iran is pumping up the volatility index, all of which is showing us considerable nervousness... So when we put all the warning signs together, we come up with one thing - a market correction. Will it happen?
The markets are behaving strangely - gold is moving near the All Time High every other day, silver is touching the highs of the Covide era. Why? We will probably never know the exact reason in this business, because it is some interplay of many factors that play a smaller or larger role. From our point of view, we have been a big fan of silver for a long time for its real use. This commodity is encoded in people as something that has and holds its value.
We see the situation surrounding Israel, Iran and their potential conflict as one of the main factors influencing the current market situation and the reason why gold and silver, for example, are doing what they are doing. Officially, the US is behind Israel and Russia is behind Iran, so it is basically a conflict of global proportions. There are also Chinese fighter jets flying around Taiwan and the world seems to be teetering on the edge of something.
Another reason may be that many central banks, especially China, are buying gold and silver at a horrendous rate. But it is not just China. The other BRICS countries are doing the same, and based on this, there is speculation in the media here and there that these countries want to have a gold-backed currency. Let's think what we want about that... What about the ticking bomb called Japan? But we've already written about that in an article here.
Given this social situation, we can ask ourselves one simple question - where will people stash their money when they fear another round of inflation combined with geopolitical events? Yes, we are at these precious metals. That's why these increases in gold and silver make sense, and for us, yes, they are definitely a strong warning sign.
However, in addition to the signals that relate to what is happening in society, there are others that relate directly to the market. Another warning signal that we are registering is the VIX. The VIX is a volatility index, a fear index if you like. It is now at a level that shows us fear - vigilance, but not panic. It has risen 25% in the last month and is hovering around 17 points. Should the VIX get above 20 points, we can expect volatility to be somewhere between 1-2% - these moves will mostly be dips, of course.
Last but not least, we look at the market technically. The major indices are going sideways with a bounce off a major resistance line and several bearish divergences. This indicates a mostly strong bearish signal, and we have written about that as well and explained what is going on in an article here.
So we are waiting for a correction, everything mentioned above points to it and we welcome it with open arms! She would be more than healthy now. Statistically, April is one of the stronger months. On its heels is May - where the "saying" "Sell in May and go away" often applies again.