News

31.08.2020 – Special Report. New records on Wall Street. But you already suspect it: The warnings of the bursting bubble are multiplying. We list the most important requests to speak for you. Perhaps the stock market is really facing an unhealthy high fever.

New Records

Was there something? Corona, perhaps? Anyway: The Dow Jones erased its previous annual losses on Friday. And both the S&P 500 and the indices on the Nasdaq set new closing records. The financial blog Marketwatch referred to encouraging economic news: private spending and incomes were surprising. Just like the fact that the Federal Reserve announced a policy shift: employment and inflation are now more in focus. In other words: more and more fresh money. Interest rate hike postponed indefinitely.

US-Tech more expensive than all of Europe

But be careful: The many bullish signals could eventually lead to a crash. Especially because of the misallocation of cheap money. The Bank of America, for example, has just warned that American high-tech stocks, with a valuation of $9.1 trillion, are now more expensive than all the stocks in Europe, which are valued at $8.9 trillion. In 2007, European shares were valued four times higher than US tech.

Correction Watch

The Knowledge Leaders Capital Blog reported seven warning signals for the bulls. The fear indicator VIX is rising, although the stock market is also rising. In the S&P 500, the breadth of the market is dwindling – fewer and fewer shares are supporting the upswing. Small stocks continue to fall, while the big ones continue to rise. The dollar is no longer weakening against emerging market currencies – apparently there are liquidity problems. Yields on corporate bonds are no longer keeping pace with the equity market. The same applies to consumer confidence. And last, but not least, the Option Speculation Index shows an enormously bullish picture, measuring call purchases and put sales. This was already the case during the dotcom bubble at the turn of the millennium, see the blue curve below.

Hedge fund billionaire Leon Cooperman warned of a Fed bubble on Bloomberg TV. The founder of Omega Advisors reported that Apple shares have gained 17 percent since the 4:1 stock split on July 30. On Friday a week ago, 2.1 million calls were traded, three times the 20-day average. Tesla has gained almost 50 percent since the announcement of its split. Michael Wilson of Morgan Stanley recently used similar arguments to warn of an imminent correction. Apple alone is often responsible for the daily gains in the major indices.
The alarm sirens are also going off the mainstream financial market. For example, the price of the construction timber future in the USA has just reached a new all-time high of 887.30 dollars. On the one hand, house builders are more optimistic again. On the other hand, this niche market illustrates what can soon happen under Corona with other assets: Because of the pandemic, the sawmills had drastically reduced production. When there is new demand, they can no longer keep up with output. And prices are rising. Which, similarly, could quickly stifle an upswing in other goods.

State crisis ahead

Unser Fazit: Auch diesmal können wir die diversen Warnungen vor einem Platzen der Blase nicht ignorieren. Der wahrscheinlichste Zeitpunkt für einen Crash wäre Anfang November zur Präsidentschaftswahl. Es ist gut möglich, dass wir ein wochenlanges Chaos bei der finalen Auszählung erleben werden, da die US-Post – die übrigens den Bundesstaaten gehört und nicht dem Weißen Haus – bei einer massiven Briefwahl überfordert ist. Was in einer nie zuvor gesehenen Staatskrise munden könnte. Vermutlich wird die Antifa dann wieder losschlagen und die Bundestruppen sowie die Nationalgarde massiver als zuvor eingreifen. Die Anleger an der Wall Street dürften bei heftigen landesweiten Unruhen auf Tauchstation gehen, bis der Kulturkampf ausgefochten und die Linksradikalen vernichtet sind. Merke: In den USA gibt es auf Bundesebene keine Kuscheljustiz, sondern mindestens fünf Jahre Haft bei Brandstiftung gegen föderale Einrichtungen. Amerika, du hast es besser.

Focus on Big Tech

Many investors are also likely to make profits on megacaps, as these could be crushed if Trump wins the election. Who can remind us that Apple, Amazon, Google and Microsoft are politically on the Democratic side, permanently disadvantage the Republicans and could be crushed as monopolies if Trump is re-elected. We will keep an eye on the matter for you – the Bernstein Bank wishes successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The trading week is over. After Powell’s speech, we can take a look at what awaits us next. The speech itself contained some important points that will have an impact on the entire US financial system as well as on the world economy.

Gold

Thus, the US Federal Reserve is abandoning strict inflation regulation and shifting its focus to employment. After all, it is clear from the fundamentals of the economy that economic growth depends mainly on a few basic indicators – production and consumption. If consumption increases, then production also increases. And consumption can only increase due to an increase in employment or an increase in wages. The Federal Reserve is now accepting that as many people as possible should find new jobs.
This means that the US Federal Reserve will soon stimulate the economy with a lot of new dollars and low interest rates. Such actions will inevitably lead to higher inflation and a devaluation of the dollar.
It is therefore worth looking at assets that are protected against inflation, primarily gold and as an option stocks of companies.

Pound Sterling

The British pound showed the highest level for this year and it is likely that growth will continue. All this is due to the weakening US dollar and a good economic backdrop in the UK. Upward movement is possible up to 1.3400 as the serious resistance zone at 1.3300 was overcome on Friday. However, a slight pullback on Monday is possible and further highs are possible.

Gold

After Powell’s statements, the gold is back on top again. Now investors are even more confident that metals will only become more expensive. Gold showed excellent growth on Friday and in the near future we will see precious metals conquering high after high. So far, the target is a powerful level of $2,000 per ounce, followed by an exit at $2100.

What’s waiting for us today?

03.00 China Manufacturing Index for August
09.00 Consumer price index in Spain since the beginning of the year
14.00 Consumer price index in Germany since the beginning of the year

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Thursday was a great day for everyone who works in the stock markets. As expected, the head of the U.S. Federal Reserve in his speech outlined the current monetary policy changes. Interest rates may not rise at all for several years, and the Fed’s goal will be to ensure maximum employment.

GBP/USD

The U.S. Federal Reserve no longer fixes on interest rates and releases inflation into free floating. Powell has assumed that there will be some average inflation, on which the reserve system will rely, and the main task now is to maximize employment.
In the near future we will have a very generous injection of money from the U.S. Federal Reserve, as well as new methods to stimulate the economy. The indices are likely to continue to grow, and the global economy is likely to feel better with such positive statements. After all, a lot depends on the United States.

Pound Sterling

The GBP/USD pair is doing very well. On Thursday, there was a break-down of the resistance at 1.3250, and we can already see that this will not be the last movement. After the Powell’s speech and the weakening of the US dollar, the GBP has good growth prospects. Soon we can see the break-through of the main resistance at 1.3250 and the exit to 1.34.

Bitcoin

The cryptomarket is almost flat for the whole week already. The coronovirus has contributed to the market growth, but there are still many difficult moments ahead. Fundamentally, the number of wallets where bitcoins are stored is growing, which should have a positive impact on price growth. The second factor for growth is decentralized financial applications. In recent months, such projects have already blocked about USD 7 billion in cryptocurrency, and forecasts say that this amount will increase to 20 billion by the end of the year… All these data indicate that the growth of the cryptocurrency is still ahead of us.

What’s waiting for us today?

11.00 European Union Consumer Confidence Index for August.
14.30 Annual data on Canadian GDP.
15.05 Speech by E. Bailey, Governor of the Bank of England

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The miracle did not happen. On Wednesday, the American market, in spite of everything, went to conquer new peaks. The S&P500 index showed a new maximum of 3475. That confidence has to be backed up by something, because macro-reporting shows otherwise.

S&P500

It is already clear that on the sidelines of the Fed a new monetary policy program is being developed, which will be based on the acceleration of the inflation target in a short time. The last ten years have shown that it is much harder to stimulate inflation than to contain it. So very soon the Fed will present us with completely new rules of the game.
Perhaps investors understand that serious changes are going to happen in the economy, so they are working ahead of the curve and pushing the indices up. Although, on the other hand, the consumer confidence index is at its lowest level since the pandemic, and the U.S. GDP is forecast to fall by 32% in the quarter. These figures do not add up to the current growth at all.

AUSTRALIAN DOLLAR

AUD/USD pair came close to the level of 0.7250, which is a weekly SMA200. The Australian dollar feels good because of the progress in negotiations between the U.S. and China. After all, Australia is one of the most important suppliers of raw materials to China.
Now the currency market is waiting for the speech of the head of the Federal Reserve, who should reveal certain cards for future actions and give a hint to investors. The trading range is narrowing, and only after statements can decisions be made.

GOLD

Gold is under pressure throughout the week. Given the endless growth of risk assets, as well as waiting for the speech of the head of the Federal Reserve presses on the unprofitable metal. In the coming days, there will be more information as to where the Fed will go. Investors will be able to analyze and find the right way forward. Although, it is already clear that gold is still gold, which will always be in demand.

What’s waiting for us today?

14.30 US GDP per quarter.
14.30 Number of initial applications for unemployment benefits in the United States.
16.30 Address by US Federal Reserve Chief D. Powell

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Hurricane Laura is approaching the United States, which has already been granted tropical storm status. Already on Wednesday night it will disrupt the work of the largest refineries in the states of Texas and Louisiana. Another oil crisis is ahead of us, or maybe everything is not so terrible as it seems?

OIL.WTI

Today, oil has crossed the border above the daily SMA200, which is symbolic before the hurricane in the Gulf of Mexico. Fears of possible supply disruptions are driving the price higher at $43.5 per barrel.
This area in the Gulf has about 15% of all production capacity in the U.S., and most of the refineries are located on the coast.
Of course, investors will now follow the situation closely, but fear has big eyes, so it is very likely that oil will rise in price in the coming days..

Indices

On Tuesday stock markets behave in a mixed way. Europe closed near session lows, DAX added 0.1%. Trade optimism is growing, Germany’s economic performance was better than expected, and the business climate index was also better than expected.
In the U.S. investors were worried about the hurricane, on Tuesday the S&P500 index remained at the opening levels.
We can see that the U.S. market is growing without kickbacks. The financial sector somehow needs to process the volumes that have come in the last few weeks. So we will probably see a flat movement in the index for a while.

Pound Sterling

The GBP/USD pair keeps near the session highs and is very well performing compared to other European currencies. Lack of progress on Brexit is pushing the pair, but expectations that the countries will find a compromise in the negotiations are strongly supporting the pound. Against the backdrop of a weak U.S. dollar, this has a certain effect. The first resistance of the GBP/USD pair is at 1.3150.

What’s waiting for us today?

12.00 Total number of unemployed in France.
14.30 Base orders for durable goods in the USA for July.
16.30 US crude oil reserves

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

25.08.2020 – Special Report. One of the most exciting stories on the financial market recently took place with gold: the yellow metal first set new records and then corrected strongly. We suspect that the eternal battle between bulls and bears is far from over. In fact, the arguments for a new bull run are overwhelming. Perhaps the verdict is right: There Is No Alternative.

We had seen the reset coming

As sorry as we are, we must once again pat ourselves on the back: it was clear that gold would not rush upwards unchecked without resistance from the shorts. That is why we had recently chosen the cautious title “New Sun or Supernova” for our Special Report before the new all-time high. It is not yet clear whether the eternal star in the investment sky will not burn out after all.

There Is No Alternative

But the pendulum is currently swinging strongly in the long territory. Presumably, in view of the gigantic changes in our world, gold will probably become a product that nobody can get past. Gold goes TINA – There Is No Alternative. At least that is the verdict of the financial blog ZeroHedge, citing an article from the blog Peak Prosperity. In fact, too many fundamental data speak against a bearish double top. Only when there is a sudden surge of optimism everywhere about the global economy could gold make a massive setback, as it did in 2011. But do you believe this?

A break in the gold rush

Last week, the blog ValueWalk, which is always worth reading, gave some arguments for why the gold rush is not yet over – currently there is only a pause. It quoted Will Cai of Wilshire Phoenix Funds: Gold is becoming increasingly important in terms of diversification and offers a hedge against inflation and volatility. After Warren Buffet had joined Barrick Gold, the price had stabilized.

1929 revisited

Ed Yardeni, Chief Investment Strategist at Yardeni Research, recently noted similarities between the 1920s and today. He compared the Spanish flu of 1918 with Covid-19, and indeed the stock market rose sharply in the Roaring Twenties. The Americans threw all their savings into stocks and consumed on credit. With the stock market crash of 1929, a small gold rush set in – the price rose to $35 an ounce between 1929 and 1934, before reaching about $21. Until Franklin D. Roosevelt banned private gold ownership in 1934, which was only revised in 1974. According to Yardeni, the big crash is yet to come; without explaining why, he cited 2029 as the crash date (we suspect that this date fits so nicely with 1929). So until then, gold would have time for a bull run.

More currency devaluation

Jeffrey Currie, Head of Commodities at Goldman Sachs, takes a similar view. Even if there is a vaccine against Covid-19 this November, it is unlikely to be widely available until the first quarter of 2021. Which means that the economy needs more stimulus and the Federal Reserve will print more money – which means a downward risk for real interest rates. And this will fuel the gold rush again.

Helicopter money destroys real interest

Mark Cudmore, former forex trader at Lehman Brothers and current macro strategist at Bloomberg Markets Live, recently joined the same horn. His verdict: “Real Yields Will Be Negative Until The Financial System Collapses. And further: “The Gold and Bitcoin Bull Run Is Just Beginning”. Because something changed this year: The Modern Monetary Theory was installed secretly, quietly and silently. We explain: Helicopter Money from the State for All to Boost the Economy and Inflation.

The debts are being inflated away

In the coming decades, the USA would have three options for getting rid of its national debt: 1. declare default 2. inflate the debt away. 3. austerity policy to slowly reduce the debt.

Option 1 is politically unthinkable. Option 3 is possible, but this cannot be maintained for several years. In our opinion: A continuing austerity policy will sweep every politician out of office. The consequence: real interest rates remain negative until the market is completely restructured or collapses. The devaluation of paper money will take place imperceptibly over a long period of time, and there will also be disinflationary setbacks and crises. But the central banks would always react to them by printing new money.

Our conclusion: These arguments all sound quite convincing. But as I said, be careful – a faster-than-expected recovery of the global economy could make the coffers of the tax authorities bubble everywhere. And perhaps, the money will then be used massively to pay off debts and interest rates will rise again. Which would be bearish for gold. The Bernstein Bank keeps this topic in mind for you and wishes you successful trades and investments.

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Nothing interesting happened in the markets on Thursday. So, while there is time, let’s go back to the question that was discussed yesterday. Apple’s capitalization reached $2 trillion. We do not believe that it can reach 5-10 trillion. And who can do it in the next 10 years?

S&P 500

Why is it hard for Apple to grow further?

The shares of the apple company have been growing very rapidly for many years. An innovative product (iPhone) was released, which everyone wanted to buy. The market was empty. Sales were growing, and demand was limited only by the population of the Earth. The problem is that smartphone sales have not grown much in the last couple of years. Everybody who wanted to buy them had already. So in the future, the company’s capitalization will increase by interest, but not in times.
There will be nothing in the market to grow so fast. Of course, we do not consider speculation with tokens, where you can get thousands of percent in a few days. We are talking about serious business on a global scale.
It turns out that the world must see something fundamentally new. This new product or service must be expensive + everyone will want to buy this product or service. This is exactly what happened a few years ago with the iPhones, when Apple created a new market from scratch.

What kind of product or service will it be?

We don’t know that, we can only assume that. That’s exactly what no analyst could have guessed 10 years ago that Apple would be worth $2 trillion.
It is possible that a new world leader, which will bypass Apple and in the future reach a capitalization of $5-10 trillion, will be associated with medicine, biotechnology, DNA decoding.
Roughly speaking, there appears a company that sells a $5000 tablet that slows down the aging processes in the body (no one is talking about immortality). Naturally, the release of these pills on the market will be preceded by human tests and obtaining all the approvals from regulators. The pill should be taken 4 times a year (subscription).
You will buy such a pill? If your salary is 1500 EUR per month, you will most likely not. And if it is 5000? What if it’s 10,000? Huge demand will be provided for decades to come.
Investors are buying the stock in anticipation of future profits. Not only that, the profit is also secured for decades to come. Investors will expect the company to make this pill even more effective over time, which means more people will want to buy it. The P/E ratio for such a company, at early stages, may be more than 1000 and even 10,000. And at later stages, already with large capitalization, more than 100.
Such niches in the market are absolutely empty. And there are many of them. And exactly those companies, which will become leaders on them, will be able to achieve capitalization of 5-10 trillion dollars in the future.

What’s waiting for us today?

08.00 UK retail sales for July
09.30 German Manufacturing Index for August
10.30 UK Service Business Index for August
14.30 Canadian retail sales for July

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Just yesterday in our newsletter we discussed the fight for the most important round level 1.20 in the pair EUR/USD. Today, such a fight took place in real time in the pair USD/CHF. The bears got the strongest fight. And in fear they fled.

USD/CHF

For 5.5 years dollar/franc pair could not break the level of 0.90. On Tuesday, the price almost came to it. On Wednesday, there was a fight. The bears wanted to break through this level and remove a huge number of stops accumulated over the years. The bulls decided to stand dead so they wouldn’t lose money.
Of course, a lot of speculators got into the game. They bought next to the level 0.90 and put the stops right behind it. The calculation was simple. If the level is broken through, you get a small loss. And if the level resists, then you can quickly get a good profit. Or you can stay in the pair for a long time at all.
What did you get in the end? The bulls won. The dollar/franc pair turned around and went up sharply by 1.5 points. The speculators got a huge and fast profit, several times higher than the risk level.
What should we wait for next? Now we have 2 options for the situation development. Either a hike to 0.93-95 (even if it takes some time). Or retest level 0.90. As practice shows, if the bears can sell the price again to 0.90, most likely this level will not resist. And we are waiting for a very strong downward movement.

S&P 500

The American S&P 500 index has finally updated its historical highs. But the situation with his partner, the Dow Jones 30 index, is interesting. He’s still 5-6% lower. Why is that? The fact is that the index, which includes 30 American blue chips, includes only 2 technology companies: Apple and Microsoft, which lead the market up.
By the way, it’s a remarkable fact. Apple’s capitalization has reached $2 trillion for the first time in history. Which company would be worth $5-10 trillion? We think it’s definitely not going to be Apple. One of our future mailings will tell you our opinion on the matter.

What’s waiting for us today?

08.30 Industrial production in Switzerland for Q2
14.30 Initial weekly unemployment benefit claims
14.30 Philadelphia Manufacturing Index for the US Federal Reserve in August

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Last week, the gold showed a strong correction. Yes, it lasted only 3 days, but such a powerful decline has not happened for several months. In last week’s newsletter, we offered our subscribers 2 basic scenarios. The most likely of them happened.

Gold

A large number of investors were happy to enter the yellow metal on a rollback. For 5 trading days we have seen virtually non-stop growth. The first target is not even historical highs, at $ 2065 per troy ounce. This is an insignificant target. Big speculators are looking at the price of $2,100, behind which the next batch of bear stops is set.
What makes us so sure of that? When breaking through the big levels, there is the following algorithm for setting the stops. Some players set the stops immediately behind the round level. In this case it was a price of $2000. And, of course, almost always such stops work. Very often, after the triggering of such stops, there are no new buyers in the market, and the price goes sharply in the opposite direction. This is exactly what happened.
Smarter investors and speculators understand this very well. That’s why they prefer to put their stops behind the next “less round number”. In this case it’s $2,100. The logic is as follows. If these stops are already knocked out by bulls, then there is no point in holding short positions, the space for price growth is huge. An additional positive for yellow metal was the new fall of the US dollar in the forex market against the major world currencies.

Euro

The European currency at the auction on Tuesday night reached the price of 1.1965. Most likely, this week we will see an epic battle for the level of 1.20. As in the example with the gold above, a huge number of stops of both buyers and sellers are located just behind this round price. The basic scenario we have already written about is as follows.
The US dollar will fall until the US presidential election this autumn. The important thing to remember is this. By the time of the election, the US dollar will be at its lowest level in 2-3 years. However, no one knows where the price will be for these 3 months. For example, after removing the stops behind the level of 1.20, we may see a powerful correction by 2-3 pips down.

What’s waiting for us today?

08.00 UK Retail Price Index for July
11.00 EU basic consumer price index for July
14.30 Canada Consumer Price Index Base July
20.00 Minutes of the US Federal Reserve’s Open Market Committee Meeting

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

18.08.2020 – Special Report. CFD traders and investors should keep an eye on Tesla – the company recently announced a stock split. And with the fourth consecutive quarter of profit, the e-car manufacturer is about to be admitted to the S&P 500, where the giant would probably be an immediate bullisher. And in any case a powerful source of unrest. Especially since the next stop is Dow Jones. We’re going to shed some light on the background.

Stock split at Tesla

Rarely has a single share caused such a turmoil in the major indices. Last week Tesla shook up the financial market with an announcement that also affected the Dow Jones and the S&P 500: the car manufacturer announced a five-to-one stock split. The split will come into effect on August 31. The final result for the major indices seems rather bullish, but is still unclear in the end – at best volatility should increase, which should be what traders and investors take for a trade in the fear indicator VIX.

Gigantic price gains

The blog “ValueWalk” has summarized the matter in a concise manner: On the one hand, the stock split will make the stock optically cheaper and thus attract new investors. It is no coincidence that the share price rose sharply after the split was announced. TSLA gained almost half of General Motors’ market cap in the after-market. This is astonishing, because de facto nothing has changed – the value of the company is now simply reflected in five shares instead of one.

So far too expensive for the Dow

Solution of the riddle: With the split, the inclusion in the Dow Jones comes closer, as the financial blog “The Motley Fool” stated. Since the Dow Jones is a price index, a company with an extremely expensive share would have upset the balance. And hence the split. Without this, Tesla would account for 30 percent of the Dow; even with the split, Tesla still has a weight of around 7 percent.

Before that the S&P 500 is waiting

Before that, however, the company will enter the S&P 500. With the fourth consecutive profit quarter reported at the end of July and a plus in the current three-month period, Tesla is qualified for entry into the broad-based index, as “ValueWalk” further noted. Tesla can now be included in the index at any time. Perhaps the announcement also coincides with the removal of the bought-up companies E*Trade or Tiffany. Another possibility would be to announce Tesla’s inclusion in the routine review in September. In any case, he said that investment funds might only have a few days to reposition themselves – perhaps they would buy the stock before or after the announcement.

A new giant for the indices

This complicates matters. With a market capitalisation of 270 billion dollars, fund managers would have to make major shifts, which according to Bloomberg is likely to be one of the most difficult issues in recent years. After all, in absolute figures Tesla is the largest stock ever included in the indices. Index specialist Gerry O’Reilly of fund provider Vanguard told the news agency that fund managers would have to sell shares worth 35 to 40 billion dollars in other stocks to make room for Tesla.

Super Liquidity Event

Whereby we wonder why index funds that track the Dow Jones or the S&P 500 do not have to sell 270 billion in other stocks one to one to open a gap for Tesla. Perhaps some fund managers deliberately want to drive up index prices by having a surplus of Tesla. In any case, according to the Vanguard manager, the inclusion will be a “super liquidity event,” meaning that some long-invested investors will cash in and sell their shares to index funds that need to replicate the SPX or the Dow.

Financial tricks at Tesla?

The conclusion to be drawn from this mixed situation: inclusion in the indices would be a knighthood for Tesla. This could generate new interest in the stock – and new purchases by exchange-traded funds. However, many astute investors have certainly been anticipating the development for just as long. What could speak for heavy selling according to the motto “sell the news”.
Moreover, there is a low risk that the index listing will burst. For example, fund manager David Einhorn of Greenlight Capital warned that Tesla’s quarterly figures had led the committee that decides on the composition of the indices upside down. Among other things, Tesla had postponed cheques to employees and expenses for research and development as well as depreciation for production in China – and thus reduced costs.
Nevertheless: “The consensus is that S&P will add TSLA to the S&P 500 index at the next opportunity with a large weighting, forcing millions of passive investors to sell the other 499 stocks to make room for TSLA at whatever the price du jour. We think the S&P 500 Index Committee has a tough decision to make as to how to respond to being gamed like this.
So all that is clear is that there will be unrest. Especially since Tesla is a notoriously volatile stock anyway. The Bernstein Bank is keeping an eye on the matter for you – and wishes you successful trades and investments!

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