Breakout or a Shakeout?

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by James Helliwell, Chief Investment Strategist

Hi everyone,

Last Friday I shared my perspective on the ‘Powell Put’ heading off fears of a ‘second wave’ of the C-word, in the context of the fundamental backdrop provided by our Checklists. Having recovered from a steep decline seen a few days prior, it seemed as though stimulus had once again won the battle. However, I have emphasised my concerns in recent Trading Club videos that the risk of a second wave is increasing and looks to be underappreciated by markets. Here’s the latest headline from the Bloomberg terminal this morning, all but confirming this.

As our Trading Club members know, I have been active on the long side during this period. By no means have I been stubbornly bearish, and I have remained flexible in re-evaluating risk as new information becomes available. After all, that’s what we’re meant to be doing as effective traders, isn’t it? Right now, the market appears to be looking complacent in light of the accelerating risk. Whilst I remain constructive on the market longer term (and have taken no action in say my retirement account), the negative score presented by our US Equity Checklist this month suggests that a correction may still be likely in the near term.

Overall, the S&P 500 looks to be running out of momentum and has been rangebound throughout June, with the sharpest moves skewed towards the bottom of the range.

The resumption in the outperformance of growth versus value stocks also suggests that investors are positioning more defensively in ‘quality’ rather than ‘cyclical’ sectors, in response to the potential dimming of the economic outlook. According to this, the value rotation (or ‘dash for trash’) seen last month was short lived.

Our Business Cycle Checklist has been negative for consecutive months now, although I have emphasised the importance of the ‘speed’ mattering more in recent weeks. Whilst the rate of change has been impressive of late, any sign of slowing momentum (‘speed’) in the data would be far more worrying against this backdrop. We will be paying even closer attention to this as we update our Checklists for July next week.

I should point out that earlier this week I was impressed by the strength in the PMI data throughout Europe, which I also shared here in our feed. But as the infection rate is a ‘leading indicator’ of the common leading indicators of economic activity and sentiment, I am not ignoring the growing threat. Very often safe havens such as gold tell you what you need to know about the shifts in risk appetite and positioning across other asset classes. The precious metal is on the cusp of a breakout, having tested the high end of the range this week.

This price action is validated by the positive score that our Checklist has maintained throughout the recent consolidation. I shared my analysis in greater detail in this week’s Trading Club video, and gold is firmly back on my watch list for the coming days…

Time will tell how this all plays out, but rest assured that our Checklists and weekly Trading Club insights will ensure that you are best prepared for the evolution in 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 and take your financial knowledge to the next level right away!

Enjoy your weekend,


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

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