At its lowest point in the month of January, the S&P 500 was down about 11 percent. However, thanks to a strong last week, and a particularly strong Friday, the S&P finished down only 5 percent for the month. The S&P is considered to be the most representative index of the U.S. market as a whole, so when the S&P is doing well, that means that the rest of the economy is likely doing the same. For the first time this year, traders and investors had a reason to celebrate.
The 2.5 percent upward surge on Friday, which is the biggest one day advance that the S&P has seen since last September, was mainly because a Bank of Japan move that slashed benchmark rates down below 0, effectively boosting worldwide stocks with a single vote. It was a much welcomed reprieve from the extreme volatility that stocks have been going through, and even if the BOJ effect is short lived, it has at least temporarily restored consumer faith in stocks and the major indices.
The main focus lately has been on the Dow Jones Industrial Average lately, particularly because the 30 companies that comprise this index are some of the biggest and most reliable there are. This index was hit especially hard because of China’s economy and the crashing price of oil, but even this index saw big signs of recovery. The index rose by 2.47 percent on Friday, finishing down just 5.5 percent for the month. Some of the major companies in it, most notably Apple, also had huge days. Apple rose by 3.45 percent on Friday, pointing toward a recovery for the major software and hardware company after posting a drop in earnings earlier in the month and seeing a decline in investor confidence. The stock is still down almost $40 per share over the last year, but this did add some traction to its fall.
As traders prepare for their February, it’s important to note that the big gains at the end of January happened for two reasons. The most obvious was the Bank of Japan’s rate cute. This was unexpected, and it gave stocks a huge jolt upward. The second reason is more of a psychological reason. Stocks have been declining for so long, and prices have gotten so undervalued that good news caused a surge in buying. There’s a good chance that many stocks are still undervalued, but as the immediate impact wears off, upward growth is likely to slow a lot. Upward growth is still likely, depending on what happens with oil and China, but it’s not likely to happen at a pace of more than 2 percent like it did on Friday. Still, the amount of change doesn’t need to impact you as much if you are able to incorporate binary options into your trading as these decide profits by a set rate of return that is dependent on predicting direction, and not actual growth rates. When the direction is clear, but the magnitude of change is not, binary options become a strong tool for traders.
That’s exactly the situation we are seeing right now. Stocks are in a good position to move up, and indices are, too. There may be days where this doesn’t happen, obviously, but overall, now that some traction has been gained and now that one of the major central banks is taking additional steps to help, we can expect to see growth of some sort over the next couple weeks. The good thing about binaries is that even if your asset of choice moves only a penny in your favor, you will still see a high rate of return.