Why Won't the Dow Break 20,000?
How do you trade stocks right now, or any sideways market near an all-time high? Or should you trade something else? You can do both on Nadex.
By Vikram Rangala
Monday, January 9, 2017 - 00:00
If you bought milk when the Dow was first "poised" to reach the psychologically important but otherwise unspecial 20,000 mark, your milk is probably sour by now. The Dow has spent a month in a roughly 250 - point range just under that mark, repeatedly rallying and looking about to break through, only to turn south again as buyers faded away.
The S&P 500 Index tested a record high only to slip back, with the Dow Jones Industrial Average falling more dramatically toward 19,902. Treasuries and gold rose with some investors moving assets to those safe havens and waiting for more clarity about what is to come once the new US president takes office on January 20. Energy shares led the decline as crude oil prices fell after a three-day rally.
The US isn't the only country anticipating change. The UK is now in the final phase of decisions about when to begin the Brexit separation from its membership in the European Union and about how the UK will trade with Europe thereafter. Amid that anxiety, the British Pound fell to a 10-week low. With the Brexit negotiations beginning, investors are weighing whether the Bank of England will keep interest rates low, which would weaken the pound and give an advantage to companies focused on exports and overseas operations.
With so many outcomes up in the air, it's not surprising that the stock market is floating like a balloon unable to rise further and also unable to descend. Investors aren't ready to turn their backs on US stocks, but they aren't ready to start another rally either—not until they get more specifics from the incoming administration.
When a market is doing a whole lot of nothing, you have a couple of choices for dealing with it. First, you could find a way to take advantage of the sideways price movement. Second, you could find some other market, maybe in another asset class, where the opportunities are better. For most traders, the first choice is tricky to pull off: if you know how to construct a spread or an option strategy like an iron condor, you could have traded the past month in stocks using those. Iron condors, anyone?
And if you wanted to just look for greener pastures, you might put your stock account aside and open your forex platform. Or if you trade the emini S&P or Dow futures, you might look at currency or commodity futures for a trend to trade.
Nadex offers some easy, quick ways to achieve the same goals. Binary options have an all-or-nothing payout based on whether or not the market is above or below a strike price. It doesn't matter how far above or below. It's as simple as is it or isn't it (above the strike price). It's...binary. As long as the answer is yes, you get the full $100 payout. So even if the market moves a small distance and ends up just one tick above the strike price at expiration, you get the maximum profit of the binary option.
Switching between asset classes is just a couple mouse clicks away on the Nadex platform. If watching the stock market has gotten like watching other people watch paint dry, you can find some nice, juicy trends in gold and oil, not to mention forex. And the best-kept secret on Nadex are the economic event binary options. Next time you express an opinion on unemployment or the Fed, turn it into a trade.
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