Market Crash: The Coronavirus has pushed financial markets into unprecedented, uncharted territories. So how you determine whether this’s a crash, correction, or just a pullback to make these once-in-a-lifetime market moves?
A market pullback
If we’re going by order of severity, a market pullback is a perfect place to start. A pullback quite simply usually results in losses of up to 3-4% for a short period of time. These usually happen pretty regularly every 3 or so months and are nothing to worry about. As a result of buyer’s fatigue – like losing your breath after running the hill, you need the time to recover!
A market correction can range from a decline between 10% and 20% depends on the definition you look at. These corrections are often fast-moving and tend to take a lot of bark off the unschooled investor. Needless to say, a correction is no joke.
The fact, what goes up MUST come down, and given the Dow Jones index in the US up 300% since 2009 – giving back a little was sure to be expected. Right now, with the Coronavirus fears escalating beyond the stock market’s wildest belief, we currently sit in this correction stage as global investors and driven prices to 5-year lows. In a market that was already trending towards all-time highs, the COVID-19 outbreak was the straw that broke the Camel’s back.
An economic recession is looming – a market crash
Media headlines are something that often talks about global economies and with the Coronavirus dominating the news right now. The old adage that ‘markets hate uncertainty’ has never been truer becoming, according to host Andrew Baxter, a Bear market. The panic that has ensued from the spread of this fatal virus is only pushing us closer to an economic meltdown as global investors sell off to exit this market turmoil.
To experience a market crash, we would need to see more than a 20% drop in the value of our market and with COVID-19 looming this may well in fact be a sad reality in the near future. Moving aside from the stock market, simply walking down the Australian high street indicates much the same. Businesses foreclosing, unemployment rising and a ludicrously overvalued property market that no one can afford to live in. Let’s be honest – this economy needs strong leadership to steward the Aussie public through such meltdown and a hefty stimulus package to go with it if we want to see any improvement.
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How to trade this market for a profit
For Joe Donut investor, the best thing you can do amidst the Coronavirus, keep your powder dry in cash. The rollercoaster is too fast, and the oven is too hot – stay safe before you hurt yourself. However, for those who have the appetite and/or skill to make money in a falling market, host Andrew Baxter recommends taking some short exposure on the market by using put options, ETF’s or even short selling (for a how-to on ETF’s, check out Andrew’s podcast).
Some of the strategies included in Andrews Option Mastery Course at AIE, many of his clients have instantiable profits. That profit off increased volatility market declines. Certainly, no time to buying, everything’s cheap. the worst’s yet to come and stocks only going depths of headlines approaching.
The advice’s, don’t guess what’s going to happen. instead, trade what is happening. Hedge your risk and play it smart because the CoronaViirus is here to stay. For any guidance on how to play this market, reach out to Andrew’s team at Australian Investment Education to see how they can direct you through this turmoil.