I hope you had a great week! It’s been a slightly disappointing one for equity investors, as Jerome Powell’s comments following Wednesday’s FOMC meeting were rather more hawkish than expected. The resulting selloff, though not something to lose too much sleep over for long term investors, was correctly anticipated by our latest Checklist report that we published on Monday. Let me take you through some of the highlights from my Trading Club video analysis from earlier this week...
Firstly, some perspective. The balance of probabilities suggest that we are in still an expansionary phase of the business cycle, and bull market for risk assets such as stocks. This is evidenced by the +3 score on our Checklist, which although has been lower recently, has begun to recover in the past couple of months. The bottom line is that the positive score currently is a positive for the economy.
However, upon closer inspection of our US Equities Checklist, there were signs of conditions being present this month for a selloff in stocks, as I warned of in this week’s Trading Club video. With the market at an all-time high at the time of recording, this was something for shorter term traders to take seriously.
And look at what happened next… the catalyst was of course the Fed, sending futures down for their 5th straight daily decline. As we typically publish our monthly Checklist Report a couple days in advance of month-end, we are always looking forward and prepared for the month ahead. In this case it worked perfectly, with the -2 correctly anticipating the selloff.
And it was a similar story with the US dollar, which our Checklist rated positively with a score of +2.
Although the greenback was in an established uptrend, we saw no reason for this to reverse, and expected a continuation. As you can see in the chart below, the DXY broke out above the previous high and traded as high as the 161.8% Fibonacci extension target of 98.95 where profit taking commenced.
Hopefully this has demonstrated the value of our process and importance of being able to trade multiple time frames - undoubtedly a skill that all good traders possess. We continue to generate high quality ideas with our process week in, and week out, and make them available to our premium members in real time. There are no BS ‘systems’ that have been backtested to fit irrelevant historic examples – just our honest and proven approach that we employ and teach to students of the Academy. 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 Million Dollar Traders online course, then get in touch with us today and take your financial knowledge to the next level right away!
Have a great weekend,
James Helliwell | Chief Investment Strategist
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