Another exciting week in markets, with the year-end finishing post almost within sight. And as November also draws to a close this week, we’re busy updating our new Checklist report for the new month (of course, Trading Club members can get it first at the Trading Club). But returning to the present, I thought it would be good to share some thoughts that we covered in our Trading Club video analysis last week.
Let's begin with our Market Risk Checklist, which scored +1 coming into this month.
As you can see, this setup provided a really good opportunity for longs, although the trend has been looking a little tired in the past weeks.
This mirrors the general sentiment surrounding risk markets such as equities, which have rallied hard in recent weeks and are now taking something of a breather. It’ll be particularly interesting to see whether we have a different score when we update this later this week.
Elsewhere, the most profitable recent action has been in currencies - perhaps with the exception of Sterling which has been contained within a range between 1.28-30.
With the positive Checklist score below, the odds favor an upside breakout and continuation of the trend (though, of course, it is very much vulnerable to political surprise and may well continue in this holding pattern until the general election outcome on December 12th).
If you want to trade currencies successfully, you need to have a view on the US dollar. This month our Checklist highlighted potential weakness, with a score of -1.
Having had a great setup earlier in the month (selling overbought to oversold on the hourly RSI), the resulting counter-rally was temporarily challenging but eventually presented our most recent opportunity to sell in to strength, and cover again on the oversold signal earlier in the month.
The euro, of course, showed the mirror opposite of this, with it’s considerable weighting in the dollar index and positive score of +1.5 (technicians may also point to the bullish RSI divergence that formed a couple of weeks ago, and provided our entry as I highlighted to club members).
Looking across to Asia, there was a nice setup forming in the Japanese Yen. With our Checklist at +2, we expected to see the Yen strengthen versus the dollar.
As you can see in the following chart, there were a few opportunities to sell USDJPY this month from the technical extremes around 108. Although the sharp correction that took place at the beginning of the month was not repeated, this has proven to be another profitable trade for us in November.
And what then to make of gold, given the opposing negative score (as typically, it is positively correlated to the Yen)?
Our Checklist correctly identified the rally over summer, before turning negative in recent weeks. You can see the resulting decline through the first two weeks of November, which provided us with a significant move to capitalise on. So far, we have yet to see much of a counter-rally, so there may be further downside to come next month if our Checklist remains negative (wait and see!).
Time will tell where the next setups appear, but rest assured that our Checklists and weekly Trading Club analysis will ensure that you are best prepared for the evolution in markets. With market drivers becoming increasingly complex in recent months it has never been more important to have a proven trading process at your disposal.
If you would like to join us for our full analysis including new insights each week or learn from the ground up with online tuition from Lex in our MDT online course, then contact us today and take your financial knowledge to the next level right away!
Have a great week,
James Helliwell | Chief Investment Strategist