I hope you’re having a great week despite equity markets losing $2.1 trillion (with a 'T') following a couple of tweets by President Trump (or 'President T***', as some may prefer to call him).
In complete honesty, I don’t really share the anxieties that have seen investors panic like they did in the last few months of 2018. This may prove to be complacent, but the chances are that, 'having seen this film before’, the fears will subside and sentiment will normalise from current pessimism with a leg higher in equities. After all, the S&P 500 recorded a new record high in the past couple of weeks, which must feel like a dream to some who are in full on panic mode now. It's also interesting to note that many fund managers who got pummelled in the Q4 drawdown may well have missed out on the face ripping rally year-to-date, so are seeing this as an opportunity to get short (where mandates permit) for a shot at redemption if their preexisting bearish outlook is vindicated. Anyway, that's enough conjecture for one day! Let's get back to doing what we do best here; focusing on our process.
Last week I demonstrated how our US Equities Checklist had turned negative following successive positive months, suggesting that the rally was fading and that sellers could take control. That is exactly what we have seen so far, with the MSCI World Index down around -2.5% month-to-date.
And here’s the mighty S&P 500 - read it and weep!
In short, our process is working for us once again, to the benefit of our students and Trading Club members who heard it first in last week’s premium video analysis. There are a host of other new ideas that we featured in this week’s video, released Wednesday, where we also made time for Q&A with our members (perhaps the best kept secret of our Trading Club!). Here are a few of the conversations that were featured:
Ok, so as I responded to David’s question in the video, our Checklists tend to focus on the change in each of the indicators rather than the actual level. Whilst a negative real interest rate is considered a drag on a currency, for traders the improvement or deterioration is more significant in the short term. In this case there had been an improvement (strengthening) in the real interest rate, so despite it being negative, this improvement is considered a positive in our Checklist process.
Next up, a similar question from Markus;
Firstly, there are a bunch of different indicators and data points that we observe and attempt to quantify in our Checklists. Lex and I have worked tirelessly to figure out the best way to analyse these for significance in trading the corresponding market. We explain some of the nuances in our videos, but generally speaking, we focus on the change in terms of whether the data are showing improvement or weakness.
Moving to the second part of the question, and the PMI surveys. These are without question some of the best leading indicators of the business cycle, and therefore the most closely correlated to rates and asset prices (regardless of which particular market you’re trading). However, for currencies there are many other factors that determine the supply and demand dynamics, especially in the short term (there's a reason some refer to it as the ‘Wild West’). Therefore, whilst you can indeed factor the PMI data into your analysis, over a 1-month horizon the business cycle indicators are perhaps not as relevant as they are over a 9-12 month horizon (or 3-6 as you say, but either way we’re talking quarters, not days here). Hope this helps!
Finally, a question from ‘Dr. M’ regarding an example ('Cakes4U’) from the stocks module of our Million Dollar Traders Course. I have copied the response on screen for this one, so I won’t repeat it again below but hopefully you can glean something from it.
That just about sums it up for this week. The weekend is very nearly here, and frankly, markets are in a bit of a deadlock pending an update on the US-China trade negotiations (War?).
Regardless, we are generating new ideas at the Trading Club week-in, and week-out. Despite all the doom and gloom out there this week, we remain confident that our process will prevail and continue to present other profitable opportunities in the weeks and months ahead. I have once again demonstrated the product of that this week, with the negative Checklist score playing out in equity markets.
In short, there’s no reason why you cannot learn to spot and take advantage of similar trades yourself with the help of our analysis. Whether you are new to trading or a more experienced investor in other markets, we are here to help you succeed. There has never been a better time to join us in taking our MDT Online Course with 3 month’s free access to our Trading Club. As I said last week, invest in yourself and you’ll be collecting the dividends for years to come. Ignore the noise out there and concentrate on developing your investing process with Lex and myself at the Academy!
Have a great weekend,
James Helliwell | Chief Investment Strategist
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