Category: Industry

The answer to this question is pretty simple to understand. The main difference has to do with time. 

When it comes to stock trading, you’re buying and selling shares in companies within a short window of time with the goal of making a profit in the shorter term. To do that, traders jump in and out of stocks within weeks, days, even minutes. Swing traders hold a trade for days or weeks. Day traders are focused on trading that stock within a day and scalp traders may hold a position for just a few minutes before selling. 

However, it takes a bit more time with investors. Stock investing is more about buying and holding shares for longer-term gain. That means months, years, even decades. You might buy a small percentage of shares, or a larger number of shares, or the entire company for that matter. With investing, it matters not how much you buy, but how long you wait. 

But how do they know how long to wait? It depends on the Investor’s analysis, and the valuation they’ve gleaned from research they’ve done on the company’s valuation over time. 

The Benefits of Trading Stocks

With the help of the technical analysis traders try to predict the direction of the stock and the possible profit and based on this analysis they buy and sell stocks  and they can do it as often as they like. They buy at a specific price and at a certain time, and then that stock is theirs to trade. Some stocks will be bought and held a bit longer than others, because they may generate a steady stream of income for a short window of time. While other stocks are bought and sold within a few hours, and sometimes minutes, because that’s what their analysis has indicated will generate the most profits. 

The Benefits of Buying Stocks

Stocks present an investment opportunity that can appreciate significantly in value. The first thing to note about investing in stocks is that shares are not backed by any government or company, but actually represent ownership in a company or a business. If a company’s stock rises in value, it's because of the company’s own merit and its ability to make money through sound management. The only risk with stock investment is that shares could depreciate over time. 

Conclusion

So, the main thing that helps to differentiate investing and trading in stocks is timing. Short-term gains are more for the traders, while investors buy shares for a longer-term reward. Investors and traders also have a different focus. Investors study a company’s longer-term valuation, while traders are keyed in on shorter-term events that could make a dramatic impact on the stock’s price. 

Last Friday the monthly non-farm payrolls were released and they showed the US economy created only 235,000 new jobs in August, way below the expected 750,000. However, this helped traders to sell the USD. The unemployment rate slid (improved) to 5.2% from 5.4% previously, while average hourly earnings (wage growth) rose to 4.3% from 4.1% previously.

Weaker than expected Non-Farm Payroll (NFP) numbers have affected the sell-oof of the USD. But there is always a winner in all situations and in this case it’s gold and silver that are flourishing because of the weaker dollar. Gold jumped above 1,830 USD, and silver tested its 50-day moving average near 24.85 USD. It really looks like some bullish momentum has finally returned to these markets.

The Jackson Hole so much expected speech didn’t bring any news about changes in Feds plans. Powell didn’t even provide any details on when the Fed might taper its 120 billion USD Quantitative Easing (QA) program; he simply stated that the Fed plans to do it if the economy continues to strengthen - which, again, is what he has been saying for months now.

It looks like after the weakened NFP numbers for last month the investors are sure that the Fed is going to again delay its tapering decision. It was expected to happen in November, but now it seems like December it is, or with some analysts already calling for a 2022 start.

Therefore, gold surged, along with silver and other commodities. As a result, gold is on track to jump above the critical resistance of 1,835 USD, where the metal has already failed many times. Silver is staging a similar comeback, currently capped by the 50-day average at 24.85 USD. Once that is cleared, a powerful rally toward previous highs/ lows in the 25.60 USD zone is expected.

The current situation seems to be bullish for the metals market. The Fed will remain dovish as long as it can. Inflation is already raging in all parts of the economy. As a result, real yields continue to decline, supporting precious metals and sinking the USD. 

The last week’s correction has gone too fast for this week’s bull market to be resumed with the same speed and record highs. This week is expected to be pretty volatile due to the upcoming Jackson Hole Symposium that will happen this Thursday. The Jackson Hole Symposium is an annual event for the central bankers, where they discuss and announce their plans.

Of course, the most anticipated announcement is about the start of tapering the Fed’s massive Quantitative Easing (QA) program when the inflation is high and kicking in all the economy parts. 

However, according to the bank Goldman Sachs, this announcement will happen not earlier than the November Federal Open Market Committee meeting. So, if everything goes well, they will announce the start of tapering and will agree on 15 billion USD per meeting. 

There are still some doubts that the formal announcement about the start of taping won’t be delayed till December or even 2022. Goldman puts high odds on a delay beyond November because of the downside risk posed by the Covid Delta variant. It’s difficult to say how much of the actual tapering which has been priced in as volatility has returned to equity indices. Considering all this, the official announcement might be bullish and even a small delay in the taper may cause equities to jump high again. 

Another positive side of this is the weakening of the US dollar. The EURUSD pair has failed to drop below its support price of 1.17 which cause a massive falling wedge pattern on the daily chart. This is in fact a strong bullish formation, and it might provide a powerful bullish signal once the pair jumps above 1.18. 

It is expected that volatility will be very elevated on Thursday and Friday which is a sign for the conservative traders to stay out of the market until the Fed's message is clear.

Last week, the OPEC+ group had to start boosting oil production by the request of the White House. It was necessary to slow rising gasoline prices that could affect the economic recovery in the world. It resulted in a problem with oil commodity itself. The boosting of oil production was criticized by the president’s administration as it supports ecology friendly movements and mostly against oil production. However, it didn’t stop them to call for more oil production. 

According to the EIA predictions, crude oil production will keep on dropping over the next half a year or so. The demand for OPEC’s oil is expected to exceed production by 1 million barrels per day, but also is expected to drop to 300 thousand in the next quarter. It seems like oil most likely be supported during this inflation period simply because it remains one of the best inflation hedges. 

So, the expectation is that short-term declines in prices will be caused by investors while long and medium-term uptrends will stay intact. If oil stays above its support of 65.00 USD it’s going to be alright. But of the bulls push the price above the resistance level, it could increase toward 74 USD. 

However, oil needs to break above the short-term bearish trendline from previous highs and post new highs to confirm the bullish momentum. Alternatively, if the price drops below 65 USD, stop losses of long positions will be hit, which might push the black gold toward the 62.50 USD support in the initial reaction. 

This Monday gold has dropped to 100 USD per ounce and silver cratered 10% before recovering but was still down 3%. During this period around 4 billion USD worth of gold futures were sold. 

Since gold and silver crash regularly it is not something new to see here. However, the fact that gold has dropped below its long-term uptrend line only shows that things are only getting worse.

The situation with inflation stays stable, as it is not going anywhere and is kept quite high with no ease. There are still some chances that the Federal reserve (Fed) will start reducing its Quantitative Easing (QE) program by the end of the year which will result in a bearish trend for precious metals. As the EURUSD pair is trying to drop below July's highs it looks like the USD might be starting another leg higher. 

Those who bought gold in April 2020 are now up circa 5% and it’s not even higher that the official Consumer Price Index (CPI) inflation. That’s why they say gold is one of the worst inflations hedges ever. However, if we look at the SP500 index, it was up 70%, and West Texas Intermediate (WTI) oil is up 200%, when some of the crypto currencies were up 1000%. 

The times when traders were buying gold against inflation are left in the past and it means there is no reasons to buy the bullion except a good technical situation or just a global preference of gold over other assets. No one wants to buy and hold an assets that is so much affected by inflation and only drops in its price when you can buy stocks which tend to go uptrend. 

It is clear that the long-term uptrend is here as the equities started rising again after a brief correction including most of the US benchmarks that are very close to their record highs. Despite the fact that last week the Federal Reserve (Fed) had a meeting to discuss monetary policy, however, they implemented no changes, as expected. 

As the Consumer Price Index (CPI) states, it is the largest inflation gain since August 2008 and it has reached 5.4% in June. And as the prices continue to fly sky high, the CPI was recorded having its highest reading in four decades. Of course, the Fed is sure that this situation with inflation is temporary, when a lot of economists claim, inflation is going to stay here longer. 

“The path of the economy continues to depend on the course of the virus, Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain” stated central bank.  

Most likely there won’t be any changes until after the first term of Fed Chairman Jerome Powell's function ends in Q2 2022 and until that time the Fed is not going to alter its monetary policy. 

Additionally, we can see that the SP500 index is extremely overstretched and is circa 20% above that average which means stocks should decline notably in the near future. And this is the only time market has been this extended. So to conclude, it is still risky to buy when the uptrend remains this high and wait for correction before making any decisions. 

Since the begging of summer, the FX market volatility has calmed a bit with the EURUSD pair trying to find its direction for the next quarter. Last year the inflation expectation has been rising sharply as the USD dropped. However, it’s been a completely different story for 2021 as the dollar has been trying to erase those losses. 

The dollar index was falling starting from April and till the end of June which sent the index from 90 to 92.50. At the same time, the EURUSD pair dropped from 1.22 to 1.18, and the USDJPY pair rose from 108 to 111. The second half of the year could be even more interesting as the Fed is about to start tapering its monthly purchases. That is the consensus of market participants. The plan should be announced in August, and the actual taper is expected to begin in late 2021 or early 2022. 

There is some price tightening happening on the market with the Feds plan of hiking monetary policy in late 2022. However, it is far from being considered a "realistic expectation."

As for the USD, the current resistance is at April highs of 93.50 (for the EURUSD pair, the support is at 1.17). If the dollar strengthens above that level, another leg higher could bring the dollar index to 95 and the EURUSD pair to 1.15. Alternatively, if the USD comes under selling pressure, the support for the index is at 90, and the resistance for the EURUSD pair nears 1.22.

During the last few weeks, the S&P 500 and Nasdaq 100 indices have been pushing to new record highs, while the Dow Jones is lagging a bit. The S&P 500 index has not been this high in over the last 4 years. 

Historically, the market has only been more stretched than it is now, five times. And only once did stocks continue to rally by a lot - 36% at the height of the Tech Bubble in 1999. That’s when equities almost always correct 10%.

The chances are quite high that stocks will decline 10%. However, this time it may be different. It may be different due to the actions of the Federal Reserve (Fed) and other central banks that are pumping insane amounts of money into the markets each month. Additionally, between 1913 and 2020, the Fed never bought corporate bonds or corporate bond exchange-traded funds (ETFs). And yet, in 2020, the Fed did all of those things, and it continues to do so in 2021.

The current bullish momentum in stocks is powerful, and it would be unwise to start shorting the market because it is overextended and overbought. Stocks can rally another 5-15% without a problem, wiping the accounts of people who are short. 

For those who think that equity markets are in a bubble, it is better to wait for a reversal signal before executing short positions. Such a signal could be a bearish pin bar on daily/ weekly, a strong divergence between some indicators and the price, a double/ triple top pattern or just general exhaustion of the bull market when the price stops pushing to new highs. 

However, we haven’t seen such signals yet. Maybe there will be some positive changes in August at the Jackson Hole conference, where the Fed will announce its plans. Until then, the outlook remains bullish, and even though equities are in a giant bubble, it looks like the bubble will not burst anytime soon.