Blog : Free Money, Scotland, Fear Index, Gold and Oil Prices, and Expiring Options

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Scotland has voted to remain a part of the United Kingdom.  The results were very close, 55% voting to stay with the status quo, and 45% supporting separating.  This result will calm the markets, as many were anticipating or preparing for uncertainty, and now can move back into their positions.

Along with the Scottish vote results, many other global events are conspiring to pull the VIX, also known as the Fear Index, down.  For example, the VIX typically trades indirectly to the stock markets, and recent strength in shares will result in weakness for the Fear Index.

At the same time, many of the global concerns, while just as significant as ever, have fallen to the backs of people's focus.  Boka Haram, ISIS, Al-Shabab, Ukraine, North Korean aggression, and disputes in the South China Sea, just to name a few of many.

 

 

The VIX is very low right now, and like has always been the case, it will eventually spike up a bit.  The question is when, and how much?

Oil prices have been falling significantly over the last few weeks.  Gold is also under pressure.  However, just remember that Oil will never be worth zero.  Gold will never be worth zero.  Like an elastic, the further it drops, the stronger the pull.  Add to that the impact of low prices 

You can't take a picture of the dark by using a flash on your camera.  The act of taking the picture actually effects what the picture will look like.  Think this way when you consider commodity prices.  As oil drops, OPEC considers slowing production, and marginal wells shut down operations.  Factors like this collude to slow the decline, and choke off supply.  As long as demand stays the same, oil prices will rise.  The same holds true for gold, and any commodity.

The real trick is getting the timing right.  Anyone can know that oil prices will eventually go higher, but a successful investor should get involved near the bottom, and profit as the downward trend reverses higher.  Oil prices, for example, are down significantly, but they may go much lower from here.  The most profitable traders will be the ones who anticipate the reversal point the best.

This is the third Friday of the month, and as always the options expiry can cause strength in stocks, increased trading volumes, and greater levels of market activity.  Typically much of this 'artificial' strength reverses next week.