Markets Ahead of 2020: How to Trade Different Time Frames
Posted on December 6, 2019
After the initial sell-off on Monday, equities have rallied this week from short-term oversold conditions. To those of you who correctly anticipated this by referring to the Checklists as presented in our Trading Club video analysis - well done! And to those of you who are yet to join us, let me show you how we identified this set up ahead of time...
First of all, our Business Cycle Checklist indicated that the economy is in an expansionary phase, and, therefore, longer-term we could expect cyclical assets like stocks to rise. The current score of +2.5 has, in fact, reversed this month following a couple of successive negative scores. Nonetheless, the information we have in front of us now provides reasons for optimism.
Looking at the long term chart of the US stock market, we can see that the S&P 500 Index closed at an all-time high last month. This confirms the positive analysis summarised by our Checklist and indicated to me that I should look to potentially buy equities this month.
So would it make more sense to buy into the rally immediately, or wait for a potentially better (lower) entry point? With our US Equity Market Checklist opposed at -1, it suggested that patience might well pay...
From a tactical perspective, the S&P 500 appeared ‘overbought’ according to the daily RSI (Relative Strength Index), suggesting that a correction may be imminent with profit-taking. The hourly chart below also appeared similar, with negative (bearish) divergence forming on the intraday RSI ('lower highs' for the RSI, divergent from 'higher highs’ in price). This provided a great opportunity to take profits, or possibly even sell short, as the market went above 3150 (and towards the 3162 Fibonacci retracement target - not pictured - that our Trading Club members have been monitoring). With this all aligned, the potential for downside in stocks was clear, and the market duly obliged with a near 100 point sell-off in the week's first two trading sessions.
I shared this analysis with Trading Club members ahead of time when we updated our monthly Checklist Report last week (27th November). Prepared with the right information based on our proven analytical process, there was not only a tactical opportunity to take profits / sell short above 3150, but also to get long / cover shorts around 2.5% lower in line with our longer term Business Cycle Checklist as the futures became oversold and touched a Fibonacci support level (again, noted in this week's Trading Club video analysis) intraday.
As you hopefully know by now, Lex and I are not in this to massage our ego by praising our good decisions to make ourselves sound clever. As for the practicing investment managers, it would be far easier to remain behind our screens enjoying a quiet life, whilst preserving our expertise for the sole benefit of our clients. After all, some of the calls that prominent hedge funds make publicly often have a nasty habit of making people appear foolish in hindsight. But our philosophy, ever since Lex founded the Academy following the Million Dollar Traders TV series, has been to share our knowledge with those who have a common passion for markets and are looking to learn - and this is our platform to do it! (Please also do not forget our usual disclaimer: our analysis is intended for educational and informational purposes only and should not be considered investment advice. Do not make any decisions based on the articles and material presented on our website.)
This week we have been running a very special promotion offering 60% OFF for our flagship Million Dollar Traders course to help those who are thinking of joining us but may not have been able to afford the outlay earlier in the year. It’s not about the hard sell here (far from it - as we don’t employ sales people!) so I trust that if you like our content, and have been wanting to join us, then you will take advantage of our festive season offer this weekend!
We will certainly be doing what we love here at the Academy with our members in 2020 and we hope you will join us for more!
Have a great weekend,
James Helliwell | Chief Investment Strategist
Disclaimer: Our service is intended for educational and informational purposes only and should not be considered investment advice. Do not make any decisions based on the articles and material presented on www.lexvandam.com and never trade with money you cannot afford to lose. We cannot be held responsible for your trading results. For more information, please check Risk Disclosure - T&C.