Wednesday witnessed a massive fall in the US benchmark indices. Both the Dow Jones and the S&P 500 lost over 4%. Gold prices are falling. However, the Bitcoin created a new high of $6,700 in this falling market, raising concerns over whether it could be a Bull-trap.
The US benchmark indices lost more than 4% as investors started fleeing even the safest bets not only in terms of equities but also commodities such as gold. The number of Coronavirus cases is increasing rapidly. And the world doesn’t seem to understand how to combat this ‘pandemic.’
- The Dow Jones Industrial Average (DJIA) fell by 4.44 percent or 973.65 points and now stands at 20,943.51.
- The S&P 500 dropped by 4.41 percent or 114.09 points and now stands at 2,470.5 points.
- The Nasdaq Composite dropped 339.52 points and is now at 7,360.58.
- Gold prices are down to $1,589 per ounce.
- Silver is down to $ 14 per ounce.
US President Donald Trump warned Americans that the upcoming two weeks could be harrowing. They would also be very crucial in terms of combatting the pandemic that has already affected more than 900,000 people worldwide.
Let’s delve into the reasons as to why the Dow Jones and S&P 500 are plunging:
- Reports state that the number of positive Coronavirus cases is increasing at an exponential rate. The world doesn’t have sufficient resources to treat such an enormous amount of cases.
- Any possible cure to the virus could be developed in at least 18 months. Needless to say, there is uncertainty regarding that as well. Now, to put that into perspective, let’s consider the case of HIV, which has been around for more than thirty years and has claimed several lives. A cure for HIV is yet to be found. Now, developing a vaccine in 18 months is still extremely fast, if that even happens.
- Investors are reluctant more than ever to keep their money in the markets. They are even pulling their money out of gold, which is usually considered one of the safest investments that one could make.
- The unemployment numbers that came out last week showed that as many as 3.5 million people are unemployed. This number is staggering enough. Some analysts claim that this number could even reach north of four million by the next two weeks. Such a massive amount of loss in jobs creates a considerable burden on the economy.
- Manufacturing industries are functioning at all-time low levels. Many of the small scale industries have already shut shops. That is going to cause an even higher number of unemployed people.
- The United Nations have stated that the world economy has already entered a recession. This time it is more dangerous than the recession of the 2008 era. The reason is no Government has been able to comprehend the economic implications of this pandemic so far. Some analysts claim that this pandemic might have a long-lasting effect on the economy much after it is gone.
Bitcoin’s sudden increase from $6,200 to $6,700: Is it a Bull trap?
Bitcoin was in the Consolidation phase since March 12, when it had created a high. Yesterday it did retest the crucial resistance level at $6,550 but failed to break it.
However, in the past few hours, it has suddenly risen from $6,200 and created a new high at $6,700, which is a massive 5.5% jump.
Now, since the critical resistance was at $6,550, and it is broken, it will act as a new support level.
It is important to note that this rally is a bit unexpected considering the past few weeks’ performances of the Bitcoin and the world financial markets in general. That is why it raises concerns over whether it is a bull-trap. Traders might take long positions hoping to ride the rally; however, it could result in massive losses.
It is imperative that one does not follow the mentality of a typical retail investor and only invest after doing thorough research.