Our 2019 Trading Review and 2020 Outlook
Posted on December 20, 2019
With the year drawing to a close, this will be my final post for 2019. I would firstly like to thank you all for joining me for the ride in what has been an incredible year for the equity and bond markets alike!
Throughout the year we have employed our Checklist trading process to successfully navigate the challenges and opportunities which have presented themselves in multiple asset classes, including currencies and commodities alongside the other mainstays. Although it has rarely been straightforward, on balance we have proven once again the value of trading with the foresight of our approach.
As markets are notoriously fixated on the future, it is perhaps only right that I state my expectations for 2020. Whilst Lex and I tend to avoid making public predictions, I can say that things appear to be set up more favorably for the new year when compared to how we began in 2019. Whilst the scores will change with the data as they are updated, a fine example of this is the recent recovery in our Business Cycle Checklist which turned negative earlier in Q4 which served as a very negative omen at the time. Fortunately, the data are showing improvement and appear to have bottomed which would suggest (at present) that the US economy should be in an expansionary phase heading into the new year. This, of course, is ideal for the majority of equity investors who employ a long-only approach, and the many correlated trades in other asset classes.
We’ll have to see how this plays out and be willing to adapt as the data affect our score. Returning to our usual update on the trades that we have been monitoring in our Trading Club videos in recent weeks, I thought I would share a few of the setups below.
Let's begin with a look firstly at our Market Risk Checklist. With a score of +0.5, it suggested trading the range with a long bias this month.
As you can see, the hourly RSI was oversold at the beginning of December and provided a nice opportunity to get long and take profit on the overbought condition that followed shortly after.
Looking elsewhere, some of the best action has been found in currencies. Here’s the Euro for example, which had the clearest score at +1.5 this month.
This provided two great opportunities to profit. Firstly, the oversold reading with support around 1.10, which I highlighted as my favorite setup of the week at the time in my Trading Club video analysis. The market ripped higher to test 1.11 soon after and provided a second setup at 1.1050 before rallying to touch 1.12. Two great setups that provided decent profit potential with a very little adverse excursion (unrealized ‘downside’).
Sterling has also been fascinating this month, mainly due to the recent rally from 1.22 and the volatility around last week's general election.
In our weekly Trading Club video analysis, we said that we were avoiding any trades in the pound given the event risk of a binary outcome with the election. But at -0.5 the fundamentals captured in our Checklist suggested that the range may well be sold by traders prepared to take a position. Ultimately this did play out after the event, with the market fading the rally towards 1.35 and returning to settle closer to a level of 1.30 seen pre-election.
Although we touched on the Euro earlier (which, of course, is the largest weighting in the US dollar index), it's still worth taking a look at what the greenback is doing. Here you can see a similar score of -0.5, which suggested selling the range this month.
There were two more great trades here - the first at 98.50 (identified at the time in our Trading Club video analysis) and the second on the short-lived counter-trend rally around 97.75. Each case provided a great setup, and the DXY later traded with a 96 handle.
Finally, we should round off with a look at the Japanese yen. Although there has arguably been more activity in the other currencies we’ve looked at, the move in the yen was notable given the simultaneous weakness encountered in the US dollar. Here you can see a total of -0.5, indicating that the following chart of USD/JPY should rise as the yen weakened.
And here it is. Having been pretty lackluster around 108.50, the break finally came on a rally above 109.50 testings the previous high. (Just as a reminder to less experienced FX traders, this means that the yen weakened to 109.50 per 1 US dollar, from 108.50 per 1 US dollar).
Even though we began with a 40,000ft view of our trading in 2019, and also a look ahead to 2020, there has still been a lot to focus on in the most recent couple of weeks. It may seem frenetic, but the one constant providing clarity and assurance throughout has been our Checklist process. Another year has passed, and we have thrived together, but most importantly of all, we have achieved the number one objective of every serious trader… to be here to trade again next year!
I hope you will join me for what is set to be another fulfilling year learning and profiting from the markets. 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 contact us today and take your financial knowledge to the next level right away!
Have a great holiday and a Happy New Year!
James Helliwell | Chief Investment Strategist
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