I hope you’ve all had a good week!
In my last post I showed you how our Checklist Report had helped us to identify a brilliant long setup in US equities, and short in the US dollar. So far these setups have played out just as we expected, and first highlighted to our Trading Club members in our weekly video analysis. This has been aided somewhat by the broadly positive news flow, which investors cheered as reports of a potential COVID-19 vaccine followed definitive confirmation of a Biden presidency earlier in the week.
Here’s a reminder of the clear positive score which appeared at the beginning of this month. Following a hard sell-off in late October, it alerted us to the potential for a return to favour in stocks.
The combination of a +3.5 Checklist score and slew of good news was enough to send the S&P 500 some 400 points higher in a matter of days, reaching a new all-time high above 3600 (if only it was always this easy!).
The move in stocks was coincident with a positive score for risk assets in general, with our Market Risk Checklist also showing a +3.5.
The following chart showing the ratio of the industrials to consumer staples ETFs points to clear outperformance in cyclicals, as correctly anticipated by our process. Although there was arguably positive correlation to the move we looked at in stocks a moment ago, there was another fine move to be capitalised on from 1.20 to 1.30 following a coincident oversold hourly RSI level. After some profit taking earlier in the week, there are signs that the move may be set to continue higher.
Lets round things off with a look at the dollar, which we also featured last week. With a score of -3 it had potential for us as a clear short this month.
As you can see from the chart, the setup around 94 proved to be a great entry on an overbought hourly RSI, from which the greenback sold almost down to 92. We’ve seen a slight retracement towards 93 where the market was once again short term ‘overbought’ and may well prove to be another opportunity to short the dollar through next week...
They say that good things comes in threes. This month, we’ve seen three great setups play out in our favour.
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Have a great weekend,
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