Oil tanks, Dow plunges: Is Recession Upon Us?

2020-03-09 | Simpler Trading Team

Oil was destroyed Monday while the DOW closed down 7.79% (2,013.45) at 23,850.79 after plunging more than 2,100 points at one point.

Does this tumble — which is the worst single day since 2008 — indicate a recession here, or soon over the horizon?

Stock prices fell limit down at 5% overnight Sunday and the market opened to a brutal emergency halt as prices tumbled to 7% down.

The market froze early in an attempt to calm things down, but money was panicking for any level of “safety and liquidity” such as the bond markets.

Traders and trading firms were blown out on Friday and early Monday. Brokers force liquidated trading positions as accounts pushed too close to “zero” with the margin in play. Many account balances were simply gone.

Oil dropped to such lows that the plunge could push companies out of business followed by a chain reaction of layoffs in the industry. Significant losses related to oil could spill over into other parts of the economy as there would be fewer paychecks and less money to spend.

While economic readings may not be as revealing yet, there are trading indicators that suggest the economy is headed into a recession and it has likely already started. The stock market is acting similar to the financial crisis of 2008.

A common question among traders is whether gold is good in this market. History shows that gold mining stocks lost 90% of their value in 2008, so the answer leans toward “no.”

As with most uncertain situations in trading, a prudent position is to be in cash and waiting for opportunities on both the long and short side of the market.

Winning in an environment like this is simply keeping your principal intact.

We Saw: a market on edge on a day that destroyed accounts — 

  • Dow opening limit down to open the day
  • Pure panic across markets
  • A minor rally into the close of devastating day

We’re Watching: … sticking with a cash position and alerts for setups —

  • Did we mention cash is king? Winning is maintaining principal
  • Be mindful of overnight risk
  • No sector, i.e. bonds, stocks, oil, pharmaceuticals appears “safe”

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