Newsletter: 16 July 2023
What’s Going On:
US Inflation Slows, Stocks Soar
It’s been a big week for markets – in fact, it has been the best week of the year so far for US stocks. Inflation in the US dropped for the 12th month in a row and the NASDAQ and S&P indices hit their best levels in over a year.
We saw strong trends across all sorts of markets last week e.g., stocks; oil; US Dollar, which should make for a lot of opportunities in the second half of July.
​
Anybody awaiting the next great bear market in stocks will have been disappointed (again) last week after a very strong performance for many world stock markets.
If we just look at the NASDAQ100 this gained 530 points over the week and is now less than 8% away from its all-time highs, set in November 2021.
NASDAQ100: Daily Candles
So last week should have been a great week for many traders – it was one of my best weeks this year as many existing trends just accelerated.
But I am guessing that it wasn’t - and I return to one of my favourite topics of why people lose. They can't trade with trends.
​
Here is a snapshot of client sentiment from a popular broker, showing how its clients are positioned on the NASDAQ.
NASDAQ100: Client Sentiment
This is a market that has been going up all year and regularly setting fresh highs with the recovery – so why are most people short?
Because – to put it bluntly – people are idiots when it comes to trading! It is far less stressful to go with the trend, but so many cannot resist trying to call tops or bottoms.
​
Inflation is the theme again in the week ahead. UK inflation is out on Wednesday morning, and this is expected to fall month on month – but is still proving to be stubbornly high.
An interesting market to watch here will be the pound, which recently hit its best level against the US Dollar since April 2022. If there is any volatility here that knocks GBP/USD back, then I will be looking for opportunities to buy the dip.
Trading Tip:
The Market Will Take Its Time to Recognise Your Genius
I make no apologies for coming back to a regular theme this week – that of patience and giving the market time to prove you right.
In the early part of trading, I think plenty of us assume that all we have to do is put the trade on and the market will recognise our fantastic analysis and start moving how we expect almost instantly. Of course, this is rarely the case.
We need to give the market time to prove us right. Virtually every trade I do goes against me for a bit – and perhaps for some time.
The reason that sensible stop-losses are so important to me is because they both control my risk – and, just as importantly, give the market time to prove me right.
​
As usual I don’t just talk about this from a theoretical point of view. As I do this for real every day I can talk you through an example of a real trade I have open.
EUR/USD: Daily Candles
EUR/USD: Hourly Candles
I gave it time to work out, and eventually the market continued the trend that has been in place this year.
I think another mistake many new (and not so new) traders make is being impatient.
At least give your trades a chance of going in your favour, and don’t jump out of them after a couple of hours.
What Am I Trading:
Is The Dollar Slide Over Done?
I came into last week long the NASDAQ and oil, and short the US Dollar. These trades all did well following the inflation release – but what next?
​
I think the volatility we saw last week makes for an interesting one this week – particularly if you are a trend follower – and there is quite a long list of markets to watch.
​
I mentioned above that last week was my best trading week this year and it was all down to the strong trends in many markets surging away once more.
The trading account I talk about on YouTube is up more than 80% since May – of course, past performance is no guarantee of the future.
I talked more about my trading and positions in the latest livestream – it's around 5 and half minutes into this video.
For me, the question for this week is a simple one to ask – but not so easy to figure out. Are we going to see these trends continue?
My approach is to be a buyer of weakness in uptrends, and a seller of strength in downtrends. There are many trends at the moment in all sorts of times frames. Let’s take a look at a couple.
​
The S&P500, the broad US stock market index, is an interesting one.
S&P500: Daily Candles
We have seen that recovery accelerate since March of this year - and I bet there have been many who think “this must be going to turn soon”. And of course – it hasn’t.
​
I would still be looking to buy the dip here. There are lots of interesting levels to watch – both medium and short term.
The big one for me in this trend is probably around 4300. It’s only if this gets broken does it start to look like this trend is actually in trouble. Until then, I will be expecting the S&P to move higher.
​
One of the more interesting moves, in a week when markets moved a lot, was the US dollar. I’ve always liked trading the US Dollar Index – the dollar against a basket of different currencies - and this week this market broke a big level to trade to its lowest in more than a year.
US Dollar Index: Daily Candles
This level had propped up the market since February of this year and various slides back had seen the buyers come back out.
But not this time.
Has the market overshot, and are we going to see at least some sort of US dollar recovery?
I think the first couple of days of this week will be telling and is exactly the sort of thing I cover on a regular basis in the WhatsApp Group I run.
WhatsApp Group:
Open To All
Earlier this year I started a WhatsApp group for those who had attended my trading course. This was designed to be a channel where I would update my thoughts on the markets every day and answer any questions. This is now available for all to join.
Here’s a screenshot of a typical update from me – this was a previous update. I talk about trades I have open; trades I am thinking about and other interesting markets.
​
If you would like to try the WhatsApp group for a month to see how it could help your trading approach, then follow this link, select WhatsApp Group and use the code EMAIL for a 20% discount off the first month’s subscription.
​
That's it for this week.
Good luck with your trading.​
​David