I hope you’ve had a good week!
It's been a very interesting one for myself and Lex, with my interview with Raoul Pal at Real Vision’s Festival Of Learning going out midweek (thanks to those of you who joined us), followed by a big sell off in equities on Thursday. At the time of writing on Friday morning, the futures have shown signs of stabilising overnight, and it remains to be seen whether there will be any follow through in the US session today.
Regardless of the narrative, and particularly when we encounter elevated volatility, it is important to remain cognisant of our process and what the Checklists are telling us. When I reviewed the action from the first week of the month for Trading Club members on Wednesday, there were a number of setups which have turned out to be profitable. I’ll share a few of them here, but must hold back some of the scores to preserve the value of our member’s subscriptions.
First up are equities. Regulars amongst you will know that I have been bullish on the stock market for some time, though this is of course influenced by what the Checklist is telling me and remain prepared to adapt accordingly. This month the Checklist weakened from a positive score to a neutral level of zero.
When we updated the scores on the 26th, this indicated that we may see some choppier trading in September. With the month likely to finish up somewhat rangebound, the best approach was to look for areas of support and resistance and short term extremes on oscillators such as the hourly RSI. When we put out our weekly video on Wednesday the market was hourly ‘overbought’ around 3550.
I wouldn’t usually provide such a short term update, but given that yesterday's sell off was the topic of my opening paragraph, I thought it was relevant to show how it didn’t take much of a catalyst for the market to dump from overbought extremes (with a neutral Checklist score, the market should tend to be more technically than fundamentally driven).
We have seen oversold levels overnight, and it will be interesting to see whether we get something of a recovery through today’s session. Don't forget though that the oscillator could reach another overbought reading intraday if there is a very sharp rally - and therefore another short setup might be on the cards. Certainly one to watch closely today…
Elsewhere, we have seen some success in currencies this past week. Let's begin with the US dollar, which in recent weeks has been something of a tricky setup for our process. A score of -1 suggested that the greenback would remain under pressure this month, despite the growing chorus from contrarians who feel that it is so hated that it simply must be a buy...
When we updated the Checklists on the 26th, the DXY was trading around 93.50. In the next few days it saw a low of 92 before retracing a little from oversold conditions. Whilst it wasn’t a massive move in itself, it is still notable given how far the dollar has already sold off in the past few weeks.
Sterling has been a more impressive trade, which we viewed as a long at the beginning of the month. Having rallied around 400 pips in the first few days of September, this has proven to be another profitable setup.
The Euro was identified as a range trade, with a slight negative bias at -0.5 suggesting that we should look for opportunities to sell the top end of the range, and cover on oversold conditions.
Here you can see the short setup that presented itself around 1.20, which soon found oversold levels following a quick tactical sell off.
The Yen has also been kind to us, but I won’t reveal the score just yet as a courtesy to our subscribers! Trading Club members are first to receive these Checklists in real-time along with our weekly commentary covering all the key markets.
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Have a great weekend,
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