ResearchPricingB2b SolutionsContact us
Terminal
Pro analytical tools for smarter trading decisions
Tradelab
Bot Builder, Live Trading, Marketplace
Messenger
Communication tool for the global financial community
Company
Learn more about the company and team
Careers
Want to become a part of Darqube team?
Investor information
Your investing opportunities in Darqube

Can you trust forecasts?

By Marius-Cristian Frunza
Weekly Briefs

The results of  the US elections showed in many ways how fragile are the statistics. While most polls were saying that the outcome will be thorough and straightforward, three days after the vote, America still does not know its next President. Are analysts wrong? Or maybe we live in a world where numbers don’t count so much? What would be the consequences for investors?

Since the industrial revolution, numbers dominated the world in all aspects. The pandemic outbreak marks a structural change in the behavioural pattern of the society.  We moved slowly and surely from a reasoning system governed by quantitative metrics and logical inference towards a paradigm dominated by qualitative attributes and opinions. Therefore, the way financial markets react to variations of numeric indicators (i.e. P/E ratio or GDP) is suffering massive mutations. We already can see that despite all fundamentals being in negative territory, the stock market is thriving. Thus, forecasts built with traditional quantitative tools have a high likelihood to fail in the current environment. A paradigm shift might be necessary for making sound forecasts. Predictions are not anymore about numbers, but about sentiments, opinions and moods. So, how investors should behave?

Traders and especially retail traders need to analyse more than ever the structure of the market and not the analytics of a given stock. Predicting a market is more about decrypting the motivations that animate the other players and less about crunching numbers.

Prediction is very difficult, especially if it's about the future. Nils Bohr, Nobel laureate in Physics

Market overview

The highly praised love story between Trump and the stock market reached to an end. The financial industry that was behind the 2016 victory did not nail its colours to the mast. The Dow Jones made a spectacular comeback reaching 28,300; a level touched last time in October.

Wall Street cheered the early signs of Biden’s victory, embracing his future policy. There are hopes about a new stimulus package and Federal monies injection in the real economy.  How these hope will become a reality, how the new administration will be able to cope with the overwhelming global crisis and for how long the quantitative easing will continue are question that only time can answer.

While in the short term, the situation could seem stable is still premature to make any sound assumption about what 2021 could bring.

Focus:

Volatility

Being short Vega was beyond any doubt, a profitable business during the past week.

Needless to say, market volatility had a very counterintuitive move amid the US election. It seems that Biden’s win could bring stability on the stock market. For more than four years the market needed to price impeachments, tax rate cuts and all sort of political disarrays. Now, investors may have a period of convergence, thereby benefiting from sudden jumps and swings. It is premature to qualify how volatility will behave, as there are too many unknowns. Clearly, markets need a moment to consolidate and to realign to some fundamentals.

As we speak the relatively low volatility level can be misleading because the various drivers seem disconnected. Markets and fundamentals must reconnect soon; otherwise, assets’ prices will be nothing but a random number generator.

Focus:

Oil industry

The foreseeable change of tenant in the White House will impact in a big way the oil industry. The Democratic candidate is motivated to align the US policy with the global agenda on climate change.

In this bigger picture, fossil energy should play a diminishing role. The leading position of the US oil tycoons started already to unravel with the COVID-19 pandemic. The structural dwindle in the oil demand juxtaposed with the foreseeable oil-exit strategy will leave the oil and gas firms mile Chevron, BP and Shell in a hiatus. Chevron’s share price is not doing well, and even the summer rally on the leading stock indices brought limited support.

The future is not bright, and a collapse of the industry is not an unlikely scenario.

Cryptocurrencies:

Bitcoin is back on track

For a few moments, Bitcoin’s price flirted with the psychological level of 16,000 USD, and we remembered December 2017. Whilst the conditions for a new Bitcoin bubble may not be in place; the leading crypto-currency has a good perspective to continue moving north until the first quarter of 2021.

The massive money printing of central banks and the increase in tax rates that will come in the following years, push investors in the Bitcoin arena. There is a big difference between the current situations and the 2017 madness. Whilst in 2017, the price explosion was generated from a mania of small investors, believing in a speculatory move, the current trends will grow slower but in a more robust manner. If Bitcoin goes above 20,000 it has all the changes to remain there in the foreseeable future.

Market outlook

The Dow Jones had a huge rebound and smashed the 28,000-resistance level. We expect to see the leading stock indices to be stable over the next week even showing a mild increase. After the results of the election becomes official, a consolidation process could start, pushing the stock market into a bearish trend, that will bring it closer to the fundamentals.

As predicted Bitcoin’s rally continued amid the success of the Democratic party during the last elections. and reached 15,500. There is no doubt that Bitcoin is becoming a leading asset in the investment arena and given the foreseeable economic depression, Bitcoin could become a safe harbour for investors. Liquidity from a broad range of investors is moving slowly and therefore, we expect to see Bitcoin rising towards 17,000 after the US elections.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

Try Darqube platform today!

It’s free and works across many devices
Start using Darqube
ok