Key points covered in this podcast
– How to go beyond ‘chart reading’ and enrich your analysis
– Why stocks considered ‘down and out’ might be good picks
– The advantages of posting charts by hand
Helene Meisler is an experienced and respected market technician and columnist for Real Money. In this edition of our podcast Trading Global Markets Decoded, our host Tyler Yell talks to her about how technical analysis strategies have evolved, why she favors ‘down and out’ stocks, and what patterns traders should look out for in 2019. Benefit from the technical analysis tips with Helene Meisler and listen to the podcast by clicking on the link.
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Technical analysis trading strategies used to be a lot harder to undertake, Helene says. When she began in the 1980s there was naturally no chart technology on every desk, so market players couldn’t just pull up a chart when they wanted.
Helene feels that today, people have become ‘chart readers’ who aren’t really analyzing but just reacting to charts using a slew of indicators. ‘Most of these [indicators] are beyond me. I didn’t grow up using those; it’s not what I do,’ she says.
However, a lot of people looking at a chart and viewing it the same way can set up a great contrarian viewpoint, which Helene sees as her domain. ‘I tend to be very contrarian, I’m a terrible momentum trader. If I ever start looking at things from a momentum standpoint, run the other way,’ she says.
Helene has always filled in charts by hand, although she did try giving this practice up in 1996. ‘We still had dial-up internet, my husband and I had moved overseas, and I was just going to be trading by myself. I thought maybe I’ll just give this up, as I could just get charts on the internet.’
However, at the end of a month of posting charts by hand, she felt she didn’t know what was going on in the market. ‘So I went back and filled in the entire month on all the old charts and never gave it up again.’
Now, she posts her charts at the end of every trading day. ‘It gives me a chance to decompress; to review what’s happened in the market instead of just reacting [instantly] to everything. Putting the pencil to paper and posting the chart is my quiet time.’
She likes to sit with a Steno Pad and on one side write down charts that feel good, and on the other side charts that don’t, listing stocks in alphabetical order.
‘You don’t really pay attention to what you’re writing down until you’re done, and then you can look at all these drug stocks, or software stocks; it gives you a different sense of the market. I guess people would call that a bottom-up approach.’
The Stocks to Choose
Helene likes stocks that are considered ‘down and out’, yet in practice refuse to go down, and end up making higher lows. ‘They’re stocks that maybe were former fan favorites but there’s a laundry list of why you shouldn’t like the stock now, and yet it refuses to go down any more, and starts making higher lows, no matter what bad news comes out.’
She uses the example of semiconductor stock Nvidia. ‘They came out and preannounced their quarter, everyone thought it was horrible; you would have thought the world was coming to an end.
‘But I looked at the chart and I said if it holds the $130 level it’s going be a higher low, it’d look like a head and shoulders bottom, and to me that’s base picking. You’re trying to find where the hate is highest and the stock refuses to react.’
Market outlook for 2019
Market breadth has been spectacular so far in 2019, Helene says. She uses the Summation Index for guidance on the direction the majority of stocks are taking. She reports the index has been heading up since late December/early January, and has shown no signs of faltering.
‘Each day I calculate what it’s going to take to stop the rise in the Summation Index. It’s a breadth calculation, and right now it’ll take approximately a net differential of -3500 advancers over decliners.
‘That’s a lot. It would take more than one day of crappy breadth just to halt the rise, and if you break it down, let’s say you get two crappy days, you’d need at least three days to halt the rise in the indicator.’
Helene always looks for what’s happened at prior periods for a barometer on the future. ‘I’m not big on the analogy thing. I’m never going to overlay the S&P today with the S&P in 1900 or whatever; that’s useless.
‘But I will take a look at what the indicators were doing at a prior point in time. And if the indicators are doing the same thing then I’m expecting the outcome to be the same.’
She plays the odds. ‘The odds aren’t always right, but I always ask, what are the odds that we have the same setup that we’ve had in prior times, because the ultimate outcome should be the same.’
Be Sure to Check Out Helene’s Platform
Helene’s daily column can be found at realmoney.com, where she also writes daily newsletter Top Stocks. She can also be reached on Twitter @hmeisler.
GBPUSD Price Slumps as Brexit Turmoil, USD Strength Takes its Toll
Sterling (GBP) Price and Latest Brexit News
- Sterling hits a four-month low against the US dollar.
- Chart looks oversold, but client sentiment remains heavily bearish.
GBPUSD – Bearish Sequence Continues Unchecked
Sterling is under heavy pressure against a resurgent US dollar and is touching levels last seen in mid-January this year and the recent sell-off continues. The recent break of support levels at 1.2894 and 1.2773 has left the pair without an anchor and sellers remain firmly in control. The recent breakdown has been primed by yet more Brexit confusion and concern as UK PM May continues to put forward her Withdrawal Agreement despite it already having been voted down in the House of Commons three times.
The US dollar continues its recent ascent with the US dollar basket (DXY) at a two-week high of 97.50 and threatening to make a fresh two-year high at 97.84. A break and close above here would produced another higher high on the longer-dated chart and reinforced further upside. Wednesday’s FOMC minutes and/or Friday’s US durable goods orders may well fuel this move higher.
GBPUSD may find some respite on the downside from the January 15 ‘spike low’ at 1.2669 yet this support looks fragile. The CCI indicator does show the pair as heavily oversold and this again may put a brake on any further sell-off in the short-term.
GBPUSD Daily Price Chart (August 2018 – May 21, 2019)
Retail traders are 81.7% net-long GBPUSD according to the latest IG Client Sentiment Data. See how recent daily and weekly positional changes affect GBPUSD and currently give us a stronger bearish contrarian trading bias.
S&P 500 Repeats Gap Down on Trade War News, Oil Cautious on US-Iran
Trade Wars Talking Points:
- A weekend for reflection on trade war ‘improvement’ around autos and USMCA led to another S&P 500 gap lower rather than relief
- With both US and Chinese parties unwilling to repair their trade rift, the impact on markets and economy is registering more palpably
- Growth will have its highlights this week, but it may be political risk that truly shapes the market landscape ahead
See how retail traders are positioning AUDUSD, EURUSD, S&P 500 along with the other FX majors, indices, gold and oil intraday using the DailyFX speculative positioning data on the sentiment page.
Trade War Enthusiasm Doesn’t Benefit a Weekend to Reflect
There was no small sense of surprise for many through the end of this past week when reports of ‘breakthrough’ on certain fronts of the global trade war failed to trigger a relief rally for the speculative benchmarks. It seems a weekend of reflection wouldn’t thaw that reticence any further. In fact, we opened the new week with speculative appetite on a backfooting with hesitation for most and an explicit squelch of pain from equities. The US benchmark indices opened Monday with another gap lower – the S&P 500’s drop from previous session close to new day’s open matched the slump on Friday. Equities retain more speculative premium relative to many other key risk assets, and the United States indices in particular maintain the greatest advantage among global shares milestones. This may be a cause of excessive risk exposure bleeding off, or it could reflect a market with a unique exposure to the chief fundamental risks moving forward. While both scenarios are plausible, I am of the mind that the former is more likely. That says something of the motivations of our markets. Watching for trade war updates may stir volatility, but it will struggle to generate trends if the market is not simply waiting for a cue on the theme. Alternatively, should momentum build behind a broad effort at ‘de-risking’, the abstract concept could place sheer speculative drive at the helm of systemic trends.
Regardless of whether the market moves forward with systemic bullish or bearish trends via collective speculation or behind the banner of an overt fundamental theme, we cannot afford to ignore the fundamental sparks as they ignite in the open market. As it stands, trade wars still poses the most pervasive and costly threat to the global economy. From the developments that could be labeled ‘relief’ from last week, there was still as little favorable market response for the assets more directly exposed to the headlines as from the broader ‘risk’ benchmarks themselves. The Canadian Dollar and Mexican Peso were still spinning their tires against the Greenback Monday, maintaining remarkably contrite ranges to bounce around. Meanwhile, the deferred decision by the Trump administration on auto tariffs translated into no significant lift in the Euro. What is far more surprising is that the reprieve didn’t prevent a drop from the DAX German equity index and German auto-manufacturer BMW continued its tumble lower. That isn’t to suggest that auto tariffs are the only risk that requires evaluation, but it is arguably one of principle concerns at hand.
It seems the speculative compass continues to favor the mood in US-China relations. There were no overt escalations to the trade war tab like there had been the past week – the US raising tariffs on $200 billion in Chinese imports to 25 percent on May 10th and China matching the tax rate on $60 billion in US goods on May 13th. However, rhetoric was clearly souring between the two. President Trump tweeted that there would be no 50-50 outcome in negotiations while China accused the US negotiators as harboring extravagant expectations’ and was in no rush to restart talks. In the meantime, the actions to ban Huawei in the US were keeping the company’s shares to bear trend while industry groups started to use the label of a ‘tech cold war’. A new industry has requested exclusion from the Trump tariffs: apparel companies asked the White House to keep footwear off the list. As we keep tabs on general risk benchmarks, it will also be important to monitor USDCNH as it menaces the politically-important 7.0000 level.
Growth and Political Risks Threaten to Amplify Market Movement
While there are different prevailing fundamental winds that will compete for market influence, there is little probability that these cross currents will shift the weight to a competing theme. That said, there is a strong probability that these significant developments can amplify the charge that we manage to generate. Sheer economic activity is a theme that is bound to draw significant attention this week. Thus far, the picture is mixed. Japan’s 1Q GDP update offered thwarted fears of recession with a robust 0.5 percent quarterly expansion that contrasted to the -0.1 percent contraction forecasted. Similarly, the annualized reading registered 2.1 percent growth against a -0.2 percent showing. How enthusiastic we should be in this reading given that consumer spending and business investment floundered which left a much weaker imports growth than export to do the heavy lifting is up for debate. For the United States, the Chicago Fed’s National Activity Index for April was unambiguous in its poor showing with a -0.45 versus -0.20 forecast. That does not support the outlook for an economy hosting a strong 1Q figure but struggling for sustained sources of growth moving forward. Ahead, the OECD will offer up an economic forecast Tuesday during European hours which will spur speculation for Thursday’s PMI figures from Japan, Europe and the US.
Another more open-ended fundamental risk in our immediate future is the scope of political risk across the global spectrum. Faltering diplomatic relations between the US and China certainly count for this category as do the impending EU elections. That said, there is more nebulous risk at play in the form of the growing threat between US President Trump and Congress. The latter is pressuring the former on financial information, testimony from his former staff and leveling threats against his family (son-in-law). There is high political drama to draw from this situation, but the economic implications are increasingly overlooked as the chances for infrastructure spending are increasingly jeopardized. Perhaps the most intense risk in this vein at present is the threat that a cold economic war between the US and Iran turns into a ‘hot’ military engagement between the two. Despite the frayed nerves and the contribution to troubled risk trends, oil prices are notably in check. Should this situation escalate, however, don’t expect the market to remain so detached.
Separating Volatility from Trend Intent for Euro, Pound, Aussie and Bitcoin
As we reach stronger fundamental developments moving forward, it is worth assessing what has greater potential for sheer (short-term) volatility and what is capable of hitting escape velocity on trend. The Euro has made a feeble effort to generate a clear trend with just the Eurozone and Italian current account balance figures to generate movement. Both series beat expectations significantly, but that does little to draw our attention away from far more systemic issues at hand. Thursday brings the start of the EU Parliamentary elections which threaten to further destabilize confidence in the shared currency already drawing fire from Italy’s anti-EU stance. Consumer confidence in the session ahead, Wednesday’s Draghi rhetoric and even Thursday’s PMIs are unlikely to draw our attention away from this systemic influence for too long.
The situation for the Pound is much the same. The Sterling has extended its slide to an 11th consecutive daily loss on an equally-weighted basis. That is an extreme move for the currency as it has only seen one other such move of that magnitude on the bearish course some 12 years ago. Here too, there is interim event risk to keep track of in the form of the Bank of England (BOE) member rhetoric and the upcoming inflation data, but that will seriously struggle to distract from the implications of the same Parliamentary elections on the UK. Having had to extend the Article 50 cut off for the Brexit, the United Kingdom was forced to participate in the elections, leveraging discontent to even greater heights. If there is serious concern that the UK will come out of this event with even stronger pressure for an ‘exit at all costs’ (no deal), the Pound could absolutely lose more altitude.
Far more limited in their respective volatility are the Australian Dollar and Bitcoin. The commodity currency offered up a remarkable surge to start the new trading week. The bullish gap for the equally-weighted measure was the largest since February 2016 while the ASX 200 similarly received a boost with a push to highs only overwhelmed by the records set back in 2007. The spark for this bullish view was the news that the Australian Federal election had settled with the government leadership unchanged. Markets prefer the status quo, but that doesn’t mean they can leverage that comfort to dynamic trend development. Australia is still beholden to commodities and China for its future. A similar, serious caveat has to be applied to Bitcoin. The cryptocurrency has drawn remarkable attention fr the extreme volatility of the past week. That level of activity has not come with any meaningful promise of trend, so tread carefully. We discuss all of this and more in today’s Trading Video.
If you want to download my Manic-Crisis calendar, you can find the updated file here.
Post-Election AUDUSD Rebound Susceptible to Dovish RBA Minutes
Australian Dollar Talking Points
AUD/USD has gapped higher following the Federal election, but attention now turns to the Reserve Bank of Australia (RBA) Minutes, with the Aussie Dollar exchange rate at risk of facing a more bearish fate as the central bank shows a greater willingness to further insulate the economy.
Post-Election AUDUSD Rebound Susceptible to Dovish RBA Minutes
The Australian dollar appears to be catching a bid with Prime Minister Scott Morrison on track to implement tax cuts and boost infrastructure spending, but it remains to be seen if the upcoming changes in fiscal policy will deter the RBA from reestablishing its easing-cycle as the central bank warns ‘that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target.’
The RBA Minutes may reveal a further change in the forward-guidance for monetary policy as ‘the inflation data for the March quarter were noticeably lower than expected,’ and Governor Philip Lowe & Co. may prepare Australian households and businesses for lower interest rates as private-sector consumption continues to be ‘affected by a protracted period of low income growth and declining housing prices.’
In turn, a batch of dovish comments is likely to drag on AUD/USD as it fuels bets for an imminent rate-cut, with the Australian Dollar at risk of facing headwinds ahead of the next RBA meeting on June 4 especially as the U.S. and China, Australia’s largest trading partner, struggle to reach a trade agreement, but the recent rebound in the Aussie Dollar exchange rate appears to be spurring a shift in market participation as retail sentiment comes off an extreme reading.
The IG Client Sentiment Report shows75.1% of traders are net-long AUD/USD, with the ratio of traders long to short at 3.01 to 1. In fact, traders have been net-long since April 18 when AUD/USD traded near 0.7160 even though price has moved 3.7% lower since then. The number of traders net-long is 7.3% lower than yesterday and 0.1% higher from last week, while the number of traders net-short is 29.9% higher than yesterday and 32.6% higher from last week.
The last time the sentiment index showed a similar dynamic was just ahead of the currency market flash-crash in January, with net-long exposure still heavily skewed ahead of the RBA Minutes. A further pickup in net-long interest may continue to offer a contrarian view as AUD/USD struggles to retain the rebound from the 2019-low (0.6745), but recent price action also appears to be spurring a rise in in net-short interest as Aussie Dollar gaps higher following the election.
Sign up and join DailyFX Currency Strategist David Song LIVE for an opportunity to discuss potential trade setups.
AUD/USD Rate Daily Chart
- Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7146), with the exchange rate marking another failed attempt to break/close above the moving average in April.
- In turn, AUD/USD remains at risk of giving back the rebound from the 2019-low (0.6745) as the wedge/triangle formation in both price and the Relative Strength Index (RSI) unravels, with the Fibonacci overlap around 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement) still on the radar the exchange rate struggles to push back above the 0.6950 (61.8% expansion) pivot.
- Next downside hurdle comes in around 0.6730 (100% expansion), but will keep a close eye on the RSI as the oscillator bounces back from oversold territory, with the development warning of a larger rebound in the Aussie Dollar exchange rate.
Additional Trading Resources
Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.
Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong.
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