Over the past week, several events and trends have significantly impacted the stock market. A couple of things have caught my eye…
1. Market Performance and Predicted Downtrends
The S&P 500 seems to be displaying multiple warning signs of a possible selloff, with significant indicators pointing towards a negative market trend including what looks to be a clear lower high. This marks its second rollover, potentially indicating a downtrend from here on… we are now watching to see if the price drops below the 200 day moving average indicating the down trend is truly in force.
2. Geopolitical Unrest
Geopolitical tensions, particularly the events unfolding in Israel, have added huge concerns to the global financial outlook. The human costs of this type of instability are devastating and I truly hope a peaceful resolution can be found quickly – I feel deeply for the families on both sides, it must be terrifying to be exposed to violent conflict first hand.
The conflict led to an initial market reaction with government bonds, the U.S. dollar, and gold rallying, while oil prices surged with Brent Crude up 7.5% compared to a week ago due to fears of supply disruption. The ongoing situation could have broader implications, especially if the conflict escalates or affects global oil supply.
3. The Divergence in Equities Markets Continues
The divergence in equity performance between the largest stocks and small cap stocks has continued. While some market commentators are starting to talk about ‘value’ emerging in the beaten-down areas of the market, I am just see a strengthening of the down trend.
4. Long-Term Treasury Yields
The 10-year U.S. Treasury yield reached new 16-year highs closing the week at 4.7%. Levels this high have not been seen since late 2007… With long term rates climbing so fast, it is little wonder stocks are continuing to struggle.
Let’s have a look at what the markets have been doing this week…
Based on the headline indices the US market was basically flat for the week with the Energy sector showing the most strength as oil prices spiked. However the flat performance for the week masks the fact that the S&P500 has rallied from just above the 200 day moving average and this rally rolled over towards the end of the week (see chart below). If this weakness continues and price breaks down through the 200 day moving average, as the chart implies it could, then we could see much lower prices in the near future.
Get your short systems ready people…(just in case)
The Australian market held up strongly early in the week, but were down on Friday, and I would expect more weakness on Monday in line with the declines in the US markets overnight.
Interestingly though there were a few regions of strength around the world this week – again likely driven by rapidly rising energy prices. The standouts were the Nordic countries, Russia, Japan and Taiwan.
I don’t have positions in any of these countries so am not close enough to really give you a good explanation for each. Yes I could google it and find some fundamental explanation, but I would rather just look at the charts…
One of the reasons I like doing these updates is that it forces me to look at the markets more broadly than I otherwise would. What do you notice in the chart above?
The Nordic market and the Japanese markets are much stronger than the markets I trade. This means I am missing out on the potential profit from these areas… my job now is to investigate which trading systems will work best and give me an edge in these markets and determine whether adding them to my portfolio will improve my overall performance.
Trading Tip of the Week
With rising geopolitical tensions and violent conflict in the world this week, the most important trading lesson that comes to mind is one of conservative risk management and having a trading plan for the scenarios that could play out. What will you do…if the violence escalates and spreads… if another conflict breaks out… if the markets panic at the potential escalation… etc.
I am certainly not advocating that you panic and exit the markets. What I am saying is that as a trader if you are going to survive long term, you need to have thought through all of the potential scenarios and ensured that your risk management plan and trading plan will keep you in the game no matter what happens in the world.
At this point, and looking at the charts above (especially the S&P500), I am very glad I trade Long / Short and I am also glad that I don’t use high leverage or strategies with huge tail risk like selling out of the money put options.
Member of the Week
My member of the week this week is Frank… Frank has been driving hard towards going live with his portfolio of trading systems and is quickly approaching his target launch date. Myself and the coaches are extremely proud of his progress and the adherence to the goal he set for himself.
Well done Frank – keep up the great work!
News from EST
Last week I shared with you the equity curve of a new system and asked if you were interested in learning more about it. The equity curve is below in case you missed it. The system is a mean reversion system that trades a highly liquid, leveraged ETF listed on the US stock market.
The reason I am talking about this trading system is that it is the first in a new service that we are launching at EST… We have always focused on teaching trading systems, backtesting, and ultimately taking control of your own trading with your own software and data feeds etc.
However, I recognize that doing this is just not practical for many people because of the time commitment or effort involved in learning, backtesting and managing a portfolio of trading systems.
Recognizing the challenge of getting started, I have decided to launch the Enlightened Stock Trading Signal Service to allow traders to get into the market and follow proven, backtested systems without the need to do all of the groundwork for themselves.
I will shortly be launching the EST Signal Service with this system which trades very selectively – about once per month on average, but has an 89% win rate, an average profit per trade of 2.33%, an average win of 3.19% and an average loss of 4.99%. It is a brilliant mean reversion system that I really like, and as you can see, it has performed in a very stable manner over many years… Including through the last 2 years of challenging markets.
This is super exciting, but like everything at Enlightened Stock Trading, there is something different and special about what we are doing!
Here is the deal – when you join the EST Signal Service, we first want you to be informed… so I will be running a LIVE training for all new members on how to choose and evaluate a signal service!
Members of The Trader Success System will know that I am big on empowering my members. For TSS Members, I give them trading systems, but I also teach them how to test and evaluate those systems for themselves to build deep confidence in any system they trade.
The EST Signal Service will be exactly the same. I want you to be 100% confident in the signals you subscribe to because I know there are many bad signal services out there, and I am determined to stand apart from them!
I am going to do this by showing you how to evaluate a signal service using simple analytical techniques you can do in a spreadsheet… I want you to be able to evaluate ANY signal service, including my own ✅
I am going to share what questions you should ask… what data you need… what calculations you should do… BEFORE YOU RISK A DIME ON ANY SIGNAL SERVICE… Including mine!
I will be running this live training for a crazy low price in the next month or so because this is something that so many new traders fall victim to and I want to stop that from happening!
The best thing is, for everyone who joins this live training session, you will also get a free month subscription to our first system’s signals!
I will also give you all of the data that you need to perform the analysis that I share in the training AND address the questions you have.
This is going to be epic, and I am thrilled to bring this to you all!
More details will come out very shortly, but in the meantime, if you are interested in learning more, please CLICK HERE to let me know that you are interested, and I will put you on the list so you are the first to hear the details of the new EST Signal Service!
On the Home Front
It was my daughter’s birthday yesterday (14), and so today I spent the morning making her birthday cake… we have a bit of a challenge going on between the kids and I. Every year they dream up something they want for their cake and I have to make it.
This year Arielle’s instructions were, “I want a cake like Peppa Pig has in the cartoon, but it has to look like a cartoon cake but in real life. It should have chocolate icing that looks like it has been drizzled all over the cake and bright decoration spots like in the cartoon”.
She is clearly past the age of Peppa Pig, but it is a bit of a joke because they like to tease me about being like ‘Daddy Pig’… I even got ‘Daddy Pig’ pyjamas for Father’s Day!
Not the best-looking cake I have ever made… My best was a toss-up between the multi-layer Merry-Go-Round in all pink with hand moulded chocolate horses (her 3rd birthday), the Pusheen Cake with hand-made characters (her 13th birthday) or the Animal Crossing one with the computer game-themed environment-made out of icing (her 12th Birthday).
Usually, it takes me hours to make and then takes the family minutes to demolish it!
Anyway, I am off to eat cake – Have an amazing weekend
Remember – You’re only one system away!
Founder, Enlightened Stock Trading