NASDAQ fell, 1,298 ticks, and then recovered. E-mini Russell fell 541 ticks, on its way to recovery. S&P 500 fell 357 ticks and pretty much recovered. GC, gold futures, fell 493 ticks, and starting to recover, and US dollar gained strength. What the heck is going on?
Okay, so let’s talk about this. A little bit of a different approach, a little bit of a different understanding. For those of you who don’t know, I’ve spent over 10 plus years trading the FOREX market, that’s the foreign exchange. And in there, that’s where I learned how to trade, before I understood stocks, options, futures, et cetera, precious metals, I spent 10 years inside the FOREX, nine plus years, right? And so what I would always do, well, not always, but a technique would be to monitor the US dollar to monitor inflation/deflation periods. And then you could use that to help determine what other symbols are doing. So if you want to trade against the Pound, or the Euro, or the Japanese Yen, or the Canadian Dollar, et cetera, you could do that.
Well, how in the world, why would NASDAQ fall? Why would E-mini Russell fall? Why would S&P fall? Why would gold futures fall, and then US dollar rally? In my humble opinion, I believe it has to do with the no deal scenario, where essentially the Republicans and Democrats could not come to an agreement to pass stimulus checks, and essentially the President said, “Hey, we’ll revisit this after the election.” Right? That’s kind of like a high level view.
And then all of a sudden, the immediate reaction, bearish. Well, there’s this book, written by Van K. Tharp and some other authors, and it’s called Safe Strategies for Financial Freedom. he talks about, specifically, how to generate income or how to protect yourself during a recession.
Inflation versus Deflation
And so, one of the things that he talks about is inflation versus deflation. So what does that mean? Well, inflation means that you’re losing buying power. Deflation means you are gaining buying power. So an example, imagine you have $100, you have $100 in cash, and this year your $100 can buy you 100 pencils. But next year, your $100 can only buy you 95 pencils, which means you had an inflation of 5% or a deflation of your buying power by 5%. Therefore, you have the same amount of money, but you lost buying power. Now, a deflation approach is where you have $100 this year, it can buy you 100 pencils, and the next year it can buy you 200 pencils, right?
Now, in 2008, the big economic crash around the world, where the housing market crashed, stock market crashed, everything just went to the floor. It was a terrible experience, but that was also an incredible deflation period where your cash, your dollar, was able to gain strength. So the US dollar actually gains strength during periods like that. What do I mean by that? Well, think about it like this, 10 years ago, here in Florida, you could buy a 3000 square foot home for under $300,000. Not bad of a deal, it’s less than $100 a square foot. Now, 2020, 10 years later, a 3000 square foot home is now worth well over $700,000, so we lost buying power in the real estate market by 50%, which is absolutely miserable.
So, think about this for a moment. When President Trump said, “Hey, we weren’t able to come to an agreement. We’re going to revisit this next year,” he’s specifically talking about the United States is not going to print money to give to their citizens. Which basically means your dollar, the United States dollar, gained strength. The US dollar increased in value because it’s like, hey, we’re not going to print money, we’re not going to devalue to a period of time, and so therefore, we’re going up, baby. One, two, three, US dollar shot up. When the US dollar went up, it means your buying power gained strength, it goes up as well.
NASDAQ fell because stocks become cheaper.
They don’t become cheaper, necessarily, it’s just your cash, or your buying power, increases, a different way of viewing this. So your buying power increased on NASDAQ, your buying power increased on E-mini Russell, your buying power increased on S&P 500, your buying power even increased on gold. And if you think about it, usually when the markets are crashing and people were kind of like, “What’s going on here?,” they flood to gold, but even gold went down too, while US dollar went up. So your US dollar gained strength, caused a deflation period, for short term period.
So what ended up taking place? Well, basically when this fell, what did President Trump do? “Hey, look, everybody, if someone brings me an agreement that just purely states that all the citizens receives the stimulus checks with no stipulations whatsoever, like no state gets this, no government gets this, no padding pockets over here, just purely the citizens all receive $1,200 each, I will sign it today, right now.”
Basically, deal is potentially back on the table, right?
As long as, what was it, the Congress or the House or whatever, can bring him a deal purely, what he said, is $1,200 per citizen, no state gets no benefit, no businesses get any benefits, stuff like that. It’s just purely 1200 bucks. Give or take, you can go read the tweet or go read what his Facebook post was. So, what did that do? Well, the deflation period went away, and the US dollar started to lose strength again, because now it’s like, oh, okay, well, we’re going to print more money, it looks like. If we print more money, we’re going to devalue, and we’ve been doing a good job de-valuing the US dollar recently. That’s why it’s been going down, and so therefore, things become more expensive. Gold futures started to go up, S&P had basically completely recovered, and you have E-mini Russell recover, and then you have the NASDAQ recover as well, and it’s still going up.
Why am I sharing this with you?
I’m sharing this with you because of the following. This is a different point of view and a different depth of understanding the markets at a larger scale. There’s way more to learn than this, absolutely, but we can still absolutely keep things relatively simple. And the reason why I say this, because some people like to look at economics, that is a economic approach, I don’t necessarily think it’s needed. The fact of the matter is this. Market fell to support.
NASDAQ fell 1200 ticks, found support, markets U-turned at, on, and around the same price points, U-turn, U-turn, U-turn, U-turn, markets on its way back up towards resistance, which is here. We could be creating consolidation range, support, resistance, support, resistance, support, resistance, support, resistance. Be on the lookout, the closer we get to the elections, the crazier and the more wild things we’re going to see in these markets. It’s happening already, these are very fear-driven moves, these are very reaction-driven moves, individuals trying to make decisions long-term. The only way to protect yourself would be to understand your boundaries and to lower that risk.
Hey, everyone, this is Joshua Martinez. Hopefully this Trader’s Tip makes sense. Maybe a little bit confusing, I don’t know. We haven’t really dove into any sort of video with a different view like this. Let me know what you think. Let me know if you’re like, hey, Josh, that was just so confusing, don’t ever do anything like this again. That’s fine. Okay, the feedback’s great. Or you may say, hey, this really is a nice perspective, actually made a lot of sense. Inflation/deflation, you may want to go read that book from Van K. Tharp, it’s actually a pretty good idea, and it’s a great read. Hey everyone, Josh Martinez, with tradersagency.com, and I’ll see you in the next video.
