Hi everyone,
I hope you’ve had a good week. In last week’s blog I shared some further insights in to our recent trade ideas generated from our Checklist Report. Our main focus was on gold, which we evaluated from the short side. Despite this being an extremely contrarian view at the time, I demonstrated why the data analysed in our process supported this. Here’s a reminder of how our Checklist looked at the beginning of August:
Following months of positive readings, the total flipped negative this month to -0.5. Whilst it may be considered broadly ‘neutral’ around zero, the score confirmed that the bull run was under threat and suggested trading the range with a short bias (i.e. selling the top end, and covering at the bottom end of the range). The following hourly chart shows how two of these very setups were realised.
Considering how fierce the rally has been, using a daily chart to provide greater perspective, it really emphasises the significance of the Checklists in helping us to correctly anticipate price action. Technical analysts amongst you may also note the overbought RSI on this daily chart, which provided bearish confirmation (or ‘confluence’) and put the odds further in our favour as gold tested $2,000.
Moving on from ‘The Big Short’, there has been a notable ‘Big Easy’ in equities. The positive momentum has continued, and stocks have this week recovered from all of their 2020 drawdown to go on and register a new record closing high. Here’s a quick headline from Tuesday, which also referred to resilience in the housing sector data (which we track in our Business Cycle Checklist).
Many of the stocks that we have featured in our Company Analysis in recent months were already at records, but the S&P 500 looks impressive in itself. So much for the ‘it won’t be a V-shaped recovery’ argument (another reminder why we don’t let other people’s opinions get in the way of our process!).
In the past few months it has been a relatively easy ride (albeit following a period of extreme volatility). As always, after a storm comes calm, and the market has continued higher as indicated by our Checklist.
“Sell in May, and go away” once again failed as a mantra for equity investors, as the VIX fell (and for the most part, remained) below 30 and the index recovered it’s 200-day moving average. From there, it was pretty clear that we had likely seen the low, and with the fundamentals firmly positive it became a something of an easy ride.
As Trading Club members were ware, this was further supported by our Market Risk Checklist which showed positive risk appetite.
And so did our Business Cycle Checklist, which included the building permits data referenced in the earlier Bloomberg article.
Here are the building permits data, which showed a decent snap back this month (albeit the longer term trend had remained positive).
As always, Trading Club members are first to receive these Checklists in real-time along with our weekly commentary covering all the key 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 MDT online course, then head to milliondollartraders.com and take your financial knowledge to the next level right away!
Have a great weekend,
James
Disclaimer: For educational purposes only. Even though we do our best to provide reliable data, you should not trade based on this information. For more information go to www.milliondollartraders.com
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