We have a quick question here from Asanka, asking what we mean when we’re referring to value buyers or value sellers in the market. Thanks for the question Asanka.
Now, to answer this, it’s actually quite simple, and we can think of a regular transaction at a retail shop. So, imagine for a second that you are inside your favorite clothing store, and there is a particular shirt that you really like, you want to buy it, but it’s just a little bit too pricey for what you think the shirt is worth.
Now, imagine for a second that you come back to the store a week or two weeks later, and suddenly you see that same shirt but it’s now on sale at 50% discount.
Now, all of a sudden, the thing that you wanted to buy is now a whole lot cheaper. Now, in the same way as traders, we are always looking for value. We want to sell high and we want to buy low.
So, taking a look at the most recent example of this was the moves that we saw in US equities. Now, after all the support from the government, as well as the central bank, we saw a tremendous push higher in US equities across the board, basically breaking out of this most recent range area in the hopes that the unprecedented stimulus will see further pushes higher in risk assets.
Now, after that of course, we had the fears of the second-wave virus cases coming up, and that saw lots of downside again in the equity markets, especially in those few US states which showed massive accelerations in numbers.
The thing about this recent move down, it wasn’t about the fears of new or second-wave numbers, it was the uncertainty of whether an increase in virus numbers would lead to further lock downs or lockdown restrictions. So, the downside was expected to be more limited and temporary, unless it actually led to further lockdown restrictions being reinstated.
Now, from a value buyer or value seller point of view, in this context we had an upside buyers for equity markets, and we had a very clearly defined support level on the chart coming in just below that 3000 level, which was evident on multiple equity markets actually, not only the in this example, we also had that same support structure seen on most of the risk-sensitive currency pays as well and when the trend is still, to the upside or to the downside, and we see any of these big type of pullbacks.
We usually can expect these type of levels to be snapped up by value buyers, or if we’re trading to the downside value sellers who’s looking to buy low and sell high. So in the case of something like the SNP, it was a strong resistance area that now turned into support. We also had just a 50% pull back on that if we just draw in a regular foop to the upside from swing to swing.
So very clearly defined level that we needed to watch, which is why we highlighted this not only yesterday, but also on Thursday and Friday, as well, saying that we need to pay attention to that initial downside, not only for the equity markets, but of course, how that reflect back to your risk sensitive currency pace saying that value buyers eventually want to step in and take advantage of these lower prices.
So whenever we see markets moving sharply against a strong, ongoing trend, we always need to be aware of where the big players will eventually want to find value and would want to snap up certain markets at discounted prices, and that can create some great, great trading opportunities. And of course allow us to be a little bit more careful with the trades we take in the, both the short term, as well as the medium term.
So Asanka, I hope that helps any other questions, just let us know.