In this new series of articles, we’ll be looking at some of the previous week’s biggest movers and breaking down what an ideal trade setup would have looked like. The corona crisis has brought volatility back to the world of trading in a huge way. The complete shake-up in global markets calls for agility from traders, as well as the ability to look beyond the assets that they may usually trade. Each week we’ll look back at some of the previous week’s biggest losers and gainers and try to offer up both technical and fundamental reasons for the moves. So let’s dive right in and see what the week of April 20 looked like.
West Texas Intermediate (USOIL_SPT)
Last week we may have seen the short trade of a lifetime as West Texas Intermediate completely crashed, briefly trading below zero on spot markets and well below that on futures markets for the first time in history. So what happened to cause the price of American crude to tank by more that 100% in less than a day?
The front month May contract on WTI
collapsed in extraordinary fashion just hours before closing. This had a lot to
do with the way futures operate because they require physical delivery. With
storage facilities in North America almost full, bids quickly evaporated from
the market and what ensued was a frantic search for anyone to offload these oil contracts onto.
The situation got dire enough to where traders were actually paying to have oil futures contracts taken off their hands. The enormous gap-up that you see on the above chart following the drop had more to do with the May contract ending and the June one beginning rather than any fundamental changes. With such a massive reduction in real demand owing to to the corona crisis, oil weakness is likely to continue for a while longer.
If the corona crisis and resultant lockdowns have been a boon for any one stock it would almost certainly be Amazon. The company’s shares are up almost 30% year to date, which has taken Amazon’s market cap above $1.2 trillion. With social distancing policies in place throughout much of the world, online retailers are benefiting massively and Amazon remains the king of online shopping.
The company recently announced that it would be hiring an extra 100,000 workers and after filling those positions, it announced that it would be hiring a further 75,000. On April 30, the company is expected to announce its earnings results for the quarter ending March 2020 and analysts are expecting it to significantly outperform earning estimates.
As you can see above, Amazon was starting to look overbought with RSI levels reaching as high as 90. We saw a divergence between RSI and price, indicating that traders could start taking profits at those levels. Then on Tuesday we saw a sharp sell-off to the 50-period moving average, which held as support, followed by a slow grind back up to the former highs, allowing the RSI to cool off. Congratulations to the traders who shorted the break of the 20-period MA and bought back when the 100-period held as support! Next week will be important as there could be a lot of trading activity around the company’s much anticipated earnings release, so be sure to keep an eye on that.
Approximately every four years the Bitcoin network undergoes a halving event in which the number of new bitcoins issued to miners per block is cut in half. With much less new bitcoin in circulation, the historical effect has been to drastically increase the price.
Following the first halving in 2012, bitcoin’s price went from the teens to the hundreds. In the wake of the second halving in 2016, bitcoin’s price surged from just over $500 to $20,000. With just over two weeks left until Bitcoin’s third halving, a great deal of speculation is taking place.
Bitcoin has continued to set higher-lows and higher-highs since it crashed below $4000 in mid-March. Since then, the big question has been whether the world’s first cryptocurrency would be able to break through the $7000 resistance label. It did so in early April only to drop below it again and has been flirting with this level all month. Last week the price hit a local bottom at just under $6500 and has proceeded to smash through $7000.
Join us next week where we’ll focus on the biggest movers and best trades in the last week of April!