Newsletter: 30 April 2023
What’s Going On:
US Economy Slows & Markets Love It
Last week’s big announcement was the latest US economic growth figure – and this came in lower than expected. What could confuse some people is the strong reaction of stock markets. The news came out on Thursday – by the end of the week the technology-based stock index, the NASDAQ, had rallied by more than 400 points and hit its best levels since last summer.
There has been a lot of talk about the potential for a US recession this year and the latest economic number was disappointing, compared to the forecasts.
Analysts were expecting annualised growth of around 1.9% in the first quarter – but that came in at 1.1%.
But markets rallied!
NASDAQ 100 Index: Last Four Days
This sort of reaction can be a surprise to many traders and investors, but we need to think past just the raw number. If economic growth is slower than expected, it may make central banks such as the US Federal Reserve more cautious when it comes to interest rate rises – and consider other ways of supporting the economy. So, the potential impact on the Fed could mean positive steps for stock markets.
Don’t forget – markets are always looking forwards.
The strong finish by stock markets suggests the recovery that has been in place for much of this year is still going, as far as I am concerned anyway. One of my medium-term trades is on the NASDAQ so I am happy to stick with it until the market signals otherwise.
Next week sees the release of the latest US employment numbers, the Non-Farm Payrolls on Friday – another very important economic indicator. Let’s see what the market thinks of that.
Trading Tip:
Watch The Reaction, Not The News
I don’t trade off news. When there is a major announcement, such as next week's one on US interest rates, the markets can go into headless chicken mode for a short period, not sure whether it is good or bad. One the dust has settled, how the market trades after can sometimes give us useful insights into which way the opportunity may be.
I think most newer traders and investors put too much emphasis on news – and reacting to their own interpretation of it. The US economy announcement mentioned earlier is a good example. The economy underperformed compared to expectations in the first quarter – so surely the right thing to do is sell stocks?
WRONG!
Dow Jones Index: Last Four Days
The Dow and other indices rallied strongly on Thursday and Friday so the right thing to do was not to force your own opinion on the market, but to see how others reacted and try to ride the momentum.
Next week sees the next interest rate decision from the US. The central bank is expected to raise rates by 25 basis points (a quarter of one percent). So, a rate rise is not going to be a surprise.
What will be important is any commentary given by the US Fed that gives some hints about any future rate rises – and this is where we need to watch market reaction.
I will be watching the US dollar index – the dollar against a basket of currencies.
It is interesting down at current levels anyway as this has been something of a floor for the US dollar for the past few months. Will next week’s decision cement the base and suggest it is time to start being more bullish on the dollar?
US Dollar Index: Year To Date
Your own interpretation of the news isn’t important – unless you have enough financial power to move a market on your own. What’s more important is the consensus – particularly if the market does not react how logic might dictate it should.
Trading Course:
20% Discount Voucher Expires Soon
I've been running my trading course for a couple of years now.
It has received 5-star Trust Pilot Reviews, I cover both short- and medium-term trading approaches – and provide ongoing support via live webinars and a WhatsApp group, updated daily.
To coincide with the launch of this new website, I am offering a 20% discount off any of the course packages, if you join before the close of business on Monday 1st May.
Just use the code APRIL20 when purchasing. You can see the course packages here.
If you have any questions, feel free to get in touch.
What Am I Trading:
Is Palladium Sentiment Changing?
When it comes to medium-term trading, I am happy to watch and trade a whole host of different markets. If stock markets are quiet for example, there will be something else that is moving.
One of my most profitable markets in 2018 and 2019 was Palladium - and I wonder if it is getting interesting again.
Broadly speaking, there are two parts to my trading approach, whether short or medium term. That is trend following or trend reversals. Palladium was a great trend followers market into early 2020.
Palladium: August 2018 to February 2020
There have been some wild swings since then and for me, over the last year, the trend has been down. But given the moves over the last couple of months is this trend starting to change? It is early days and trend reversals are always tricky to call – just when you think that sentiment is changing, markets can snap back into the old trend.
Palladium: Last Six Months
Part of the reason for the strength is pinned on hopes of a bounce back for the Chinese economy. If that recovers strongly the thinking is that industrial metals such as palladium will see increased demand and pull the price higher.
Let’s see. If there is one thing I have learnt over the years is to be patient with major trend reversals, so I won’t be obsessing every day about the price, but the moves over the last couple of months have been encouraging.
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As usual, trade examples are for educational purposes only - always do your own research.
Who Do I Trade With?
We are spoilt for choice when it comes to brokers and trading platforms and, on the face of it, there is not much to choose between one company and another. Which is an interesting point – if we are all looking at broadly speaking the same information then why do so many struggle to make money?
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An important consideration for me is the analysis of my OWN trades. Where can I improve, where do I have some possible bad habits - and how can I fix it. I made a short video explaining why I trade with who I do – and you can try them out too.
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You can watch the video here.
That's it for this week.
Good luck with your trading.​
​David
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