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Summer Volatility Bucks Trend in Traditional Asset Classes

The unusual volatility we've seen this summer in the equity and bond markets has driven many investors into bitcoin.
Dividend Investments offers actionable investment analysis to beat the benchmarks and limit risk in global finance.
Dividend Investments offers actionable investment analysis to beat the benchmarks and limit risk in global finance.

The summer trading period is typically characterized by reduced trading volatility. However, the market activity we have witnessed during this period in 2019 has certainly managed to buck this long-term trend.,

One of the most commonly used phrases in the financial markets advises traders to “sell in May and go away,” however there are several factors at work which indicate that these trends are changing for traditional asset classes. This raises several important questions with respect to where traders are likely to direct most of their buying activities over the next few months.

Negative market catalysts are being experienced on several different fronts, as weakening economic data seems to be validating consistent trade war concerns, multiple inversions in the global yield curve, and the prospect for a disorderly Brexit event in the U.K. As a result, many of the markets traditional asset correlations have broken down and traders are looking for more innovative ways to protect portfolio holdings.

One of the most surprising victors in all of this chaos has been found in the realm of digital currencies, where it must be pointed out that bitcoin assets have proven their worth as a geopolitical hedge. But what is most surprising about this emerging trend is the fact that it greatly diminishes the role of traditional safe haven assets.

Given all of the downside catalysts currently visible in stock markets, one might have reasonably expected to see U.S. dollar valuations move much higher and finish the low-volatility trading period with strong gains. But while this might have been the case early in the summer, those rallies have started to reverse and this raises some key questions for where market activity will resume heading into the final parts of 2019.

When the Invesco DB US Dollar Index Bullish Fund [UUP] fell to the June lows of $25.09 market trends quickly propelled the greenback to reach highs of $26.80 roughly five weeks later. This move marked a relatively healthy gain of 6.82%. However, those moves started to see sizable retracements once macro tensions injected more volatility into the markets. Rather than helping the U.S. dollar asset rally (as one might traditionally expect), bullish investors chose to move into bitcoin assets and BTC/USD made clear breaks above prior resistance levels.

Currently, the BTC/USD crypto pairing faces strong resistance at $12,310 and traders may require a period of consolidation in these areas given the three-fold wave structure that currently defines the trend. Double-bottom support levels rest just below market prices at $9,150, which marks a key pivot area for where trend activity is likely to resume once the summer trading period finishes.

(BTC/USD Chart Analysis: AskTraders.com)

Despite these moves higher, indicator readings have been caught in the middle ranges and this suggests BTC/USD might have plenty of room to extend before making a true reversal to the downside. The real signal in determining the next path forward for the BTC/USD pairing rest at the 200-day exponential moving average, which is currently holding near important psychological levels at $8,000.

As long as markets are able to hold above these areas, the bias remains bullish and many traders are likely to target new highs in BTC/USD before the end of this year. Given where these assets were trading in the first half of 2019, these projections might be taking some traders by surprise. However, the chart activity is what has told the real story and it is quickly becoming clear that the long-term trends which defined markets in 2018 may have reached a point of exhaustion.

Ask Traders gives readers actionable investment analysis to beat the benchmarks and limit risk in global finance. Find more financial market commentaries at https://asktraders.com.

Equities Contributor: Ask Traders

Source: Equities News