I hope you’ve all had a good week!
Having seen a new record high last week, the US stock market has traded mostly sideways over the past few days as investors continue to interpret company reports amidst earning season. Netflix stands out in my mind as one of the big negative surprises, although many companies including the likes of Philip Morris and J&J (which I own) have seen strong beats. On balance there hasn’t been a great deal to drive the overall market in either direction, and in the absence of any major data releases it has been fairly uneventful compared to recent weeks.
In all honesty, the strength we saw earlier in the month came as something of a surprised given the ‘near neutral’ score of +0.5 presented by our US Equities Checklist. Given the ‘overbought’ condition seen in the daily RSI for a number of days, it perhaps makes more sense that the market might be prone to a little profit taking here to balance out all the buying we have seen.
Longer term the bull market in stocks appears to be well supported by the outlook for the US economy. The score for our Business Cycle Checklist increased to +2.5 this month and also validates the normalisation in interest rates (yields) which the bond market has been positioning for.
With things fairly steady in the equity market this week, the greater action can been seen in currencies. As I discussed with Trading Club members in this week’s video analysis, FX has been a good area for finding profitable trade ideas this month. Here’s how our scorecard looked for the US dollar was set up as we began the new month.
With the Checklist suggesting a negative bias, the market was at an opposing price extreme with the RSI above 70 on a daily interval. This seemed like a great setup with the US Dollar Index(DXY) trading above 93 whilst our process had a score of -1. As you can see in the days that followed, it has been pretty much a one-way bet downwards ever since.
This tend has had a profound effect on the other currency pairs that we also follow including EUR, GBP and JPY. Lets begin with the Euro, which had a score of +1.5.
With opposing scores for each leg, EURUSD has staged an excellent rally from 1.17 to over 1.20 since the beginning of the month. There were also a couple of brief opportunities on an hourly interval to capitalise on a short term ‘oversold’ level on the RSI, before the trend continued higher.
Sterling also shared a similar setup, with a score of +2.
However, it did turn out to be a bit more volatile than the one-way bet we saw in the Euro, but nonetheless shows a gain since the beginning of the month with a couple of short-term oversold setups before testing the 1.40 level.
And finally, here’s the neutral reading for the Yen. With no directional bias anticipated for the Japanese currency this month, it suggested that the USDJPY pair would be purely dollar-driven.
And that is exactly what we saw, with dollar-yen sliding from 111 to below 108 in a very similar way to the DXY this month.
In conclusion, the main action so far this month has been seen in currencies. It will be interesting to monitor the action in the dollar given the extended move that we have seen in the past couple of weeks. To learn more about our methods, and join me for more analysis in real-time, check out our MDT course and Trading Club pages where you can preview everything that we cover.
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Have a great weekend,
Disclaimer: For educational purposes only. Even though we do our best to provide reliable data, you should not trade based on this information.
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