The sharp decline in U.S. indices has many people worried. Over the course of three days, the S&P 500 dropped by 5%, an alarming number by any measure. For those that are concerned, there is more data behind this sudden selloff than at first glance, and much of it is not bad. In other words, there are legitimate doubts that the U.S. economy is truly as bad as it seems right now. If this is the case, the S&P 500 and the other major indices within the U.S. will recover fairly quickly in price.
According to some experts, the drop wasn’t so much a statement about the U.S., but about emerging markets. First, remember that this is a time of year that is not heavily traded. Volume was lower than average for a Friday when this occurred, and that meant that the usual masses were unable to provide the cushion against knee jerk reactions like they typically do.
Other factors also contributed to this. China is an ongoing concern now, as are the weak reports coming out of Latin America. Commodity prices cannot find any sort of stability, either. These things, when combined, can create investor uncertainty and lead to a loss of confidence, even in areas where that shouldn’t be applied.
If you look at this as an opportunity rather than a potential crisis, things are extremely positive right now. For one, it seems that the Fed is unlikely to push forward with a rate hike in light of what just happened. For companies, that means an almost automatic setting in which they may thrive. The dollar has continued to be weaker than as of late, and that should help bring foreign money into the U.S. quickly, which is also encouraging. When something like this happens, other recognize the profit potential in it too.
There are many other opportunities that will emerge when index prices go up for you as a trader. Investors are given an artificial low point at which to put their money and can speed up the growth process on their money. Over time, this will even out a little bit, but it does give a nice boost that will never completely go away if done right. Also, position traders are given a very clear starting point. Most major companies were hit heavy by the drop, and now companies like Apple and Google are all stocks that should be strongly bought. These companies will go up and they will do it soon, and position traders can profit off of this now. Binary options traders also have a great advantage, and in a much bigger way. It’s almost a guarantee that each of the three major indices will be up at the end of the year from where they are now, and it’s a strong likelihood that they will be up at the end of August, too. These types of longer term trades are perfect opportunities to add a few dollars to your trading account.
There’s no promise that prices will go up immediately, so pay attention to the short term technical indicators so that you can have a better idea of when to get started approaching your trades of choice. Long term investors and position traders do not have as much to worry about, but if you plan on being in the market for only a couple days or shorter, then more caution is needed in order to protect yourself. This is especially true of binary options traders that lose control of how long their exposure will be once they enter a position. This is a great opportunity all around, but losing sight of the details that are a necessary part of your success here can be harmful.