In January, I predicted that 2016 would be the year of the trader, driven by heightened volatility.
After falling more than 11% at the start of the year, the Dow Jones Industrial Average is now up 13% off the February market bottom.
However, volatility still abounds. And in addition to it, the odds of further interest rate hikes in the U.S. have also nosedived as the Fed dodges the issue time and again.
Every time the Fed meets, hopes of a rate hike become increasingly bleak, rattling the nerves of investors all over the world.
I also anticipated that oil would find its footing and reward opportunistic traders with outsized profits.
That’s also come to pass. Since the start of 2016, crude oil has nearly doubled off its bottom on the year, and could still storm even higher.
Indeed, the first half of this year has proved quite taxing for long-term investors. But it’s also posed great opportunities and subsequent yield for trend traders.
In fact, it’s looking like the second half could be even juicier than the first…
A Trader’s Best Friend
Most investors view the stock market in terms of fundamentals, concerned primarily with a company’s revenue growth, and how sales translate into profits.
More specifically, however, investors focus on how a company’s growing wealth benefits its shareholders.
This very mindset lends itself to a long view and requires great patience in order to realize profits. And these days, long-term investing demands an iron constitution.
Traders, on the other hand, are much more nimble, with inherently shorter investing horizons.
The most successful traders take a market-neutral approach to making money. That is, they’re able to profit both by going long or short stocks – in bull markets and bear alike.
Above all, traders capitalize on stock momentum and market trends rather than the contents of a company’s financial statements.
Generally speaking, everything a trader needs to know is represented in the charts.
This is why, when market action gets dicey and stocks become detached from their fundamentals, traders often have the advantage due to their possession of a more instinctive and well-rounded set of skills.
Heavy Seas Ahead
As you know, the Fed voted to leave rates unchanged and even lowered its hike outlook for the rest of the year.
This comes as no surprise to most investors following May’s dismal jobs report.
But, with the June FOMC meeting in the rear view, the markets are positioning themselves ahead of next week’s crucial Brexit vote.
Investors are already yanking their money out of the markets.
After rallying from February to May, the Dow has fallen 2% in the last week alone.
Plus, the Volatility Index (VIX), better known as the market’s fear gauge, has leapt by 40% over the same period.
According to financial technology company Fidelity National Information Services (FIS), U.S. stocks could fall another 5% if the United Kingdom votes to leave the European Union. The company also estimates that volatility in stocks could spike by 50%.
Yet, if the country votes to stay, market sentiment could shift and stocks could easily rally to new heights.
The bottom line is simple: The Brexit vote could make for one of the best trading opportunities of the year.
Stay tuned. Next week, I’ll reveal one of the most attractive targets.
On the hunt,