Risk Call

Market Outlook 2018 – Traders’ Risk Call

Posted on by TrackRecord Trading

As 2018 approaches, we speak to finance professionals about their key themes and risks for the coming year. Will 2018 bring more stability, or more uncertainty? How should investors react?

This week, we speak with Damien Loh, co-founder and CIO of Ensemble Capital which is a hedge fund that will be launched in January with seed capital of 75 million USD from high-net worth investors, family offices and institutional investors. Damien graduated from Cornell University with a degree in Computer Science and has traded FX options for JP Morgan for 15 years in New York, Tokyo, London and Singapore. During his tenure, he has traded both emerging and G20 markets and has market-made volatility products across the spectrum from vanilla options to exotic products. He is a consummate believer of combining the domain expertise of humans with the analytical prowess of A.I. and machine learning to gain an edge in markets.

Hear from Damien as he shares with Vee, the themes and trading opportunities that he sees in the year ahead…

 

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Learn to Trade

‘Tis the Season for Trading in Singapore

Posted on by TrackRecord Trading
forex trading singapore
14
Dec

It’s the most wonderful time of the year! But are there such times for investment trading, particularly when investing in Singapore?

As its name suggests, seasonality is a regular periodic fluctuation in an area of business according to a certain season. As we work on our developing our trading strategies towards becoming better at trading in Singapore, let’s take a look at how seasonality affects trading and how you, as an informed and conscientious trader, should act accordingly.

What is Seasonality?

Seasonality, by definition, is when data changes predictably every calendar year. This is different from cyclicality, which can last shorter or longer than a year. Also, in order to be considered ‘seasonal’, a trend has to repeat consistently: recessions, which can last from a year-and-a-half to two years, do not count as seasons.

Seasonality can either mean a holiday like Christmas, an actual season like spring or summer, or an event like elections, long weekends, or the opening of the school year or graduation.

Risk.net says that seasonality affects all commodity futures markets to some extent. The effect of seasonality on business can readily be seen in terms of sales or supply and demand, but might take a little more effort to recognise when it comes to investment trading.

An investor, for example, might base his decision to buy or sell his securities in a certain company because of a spike in revenue—without considering the season behind the reason for the spike.

Some investors in the stock market look to seasonality to help them make trading decisions, arguing that if historical data shows recurring results, then you should be able to duplicate those results successfully.

For instance, a company that manufactures air conditioners will see a jump in revenue during the summer, which is also when companies involved in travel and tourism usually enjoy increased profits. For the Christmas season, it will be the time for consumer goods and retail sector to rejoice.

What are some Seasonal Trends?

Other seasonal trading trends include the so-called ‘January Effect’, which gives traders an idea of the market’s performance for the rest of the year. The End of Quarter Effect, on the other hand, is the time of year when portfolio managers get the urge to ‘end on a high note’. This is done through aggressive bidding on shares that they already own to boost stock values for the time being.

The End of Quarter Effect is also quite similar to what happens in the market at the end of the year itself, AKA the Year-End Effect.

There is also a type of seasonality that refers to a period before a season, called the Pre-Holiday effect. This is when stock prices go up on the last trading day prior to the actual holiday: this year for Christmas, for instance, would be on December 22nd.

Some say the Pre-Holiday trend is caused by the general optimism in the air during a holiday season, and that the reduced market activity during these times of year also lowers overall market liquidity, which in turn affects stock prices.

Others say that Holiday trends in general are caused simply because everyone participating in the market expects the holiday at hand to affect market performance, and in acting accordingly, they effectually cause their own expectations to come to pass.

With forex trading in Singapore, seasonality can be observed during certain months in both currencies such as the USD and JPY, and commodity currencies such as AUD and CAD.

Seasonality as a Deciding Factor

So should you let seasonality affect your trading decisions? There are seasoned traders out there who advise against it. While history may repeat itself, it’s not a 100% fool-proof guarantee that the results you gained last year will be repeated this year or even the next.

Making seasonality the sole basis for your trading decisions is insufficient for justifying your trading and investment strategy. A Christmas rally, for instance, might be based mainly on the prevailing emotions of market players at the time (and as any savvy trader or investor will tell you, making trading or investment decisions based on emotions is a no-no).

It is also quite likely that investing based on seasonality will not be in sync with your personal risk appetite. You would do well to note that investment decisions based on seasonality comes with more risk, as well as its share of capital gains tax and transactions costs.

If a trader has a thorough understanding of how seasonality works, only then should he even consider it as a deciding factor in his trading decisions. Even then, this knowledge of seasonality only gives such a trader a slight advantage, at best.

Seasonality might appeal to those with a short-term outlook who are after quick gains before selling their shares and planning their next steps. For traders looking for long-term, consistent gains, they would do better to focus on an asset’s performance over longer periods of time instead of the changes brought about by the seasons.

Tread Carefully With Seasonality

Traders who do choose to factor seasonality into their strategies would do better to zoom in on seasonality per industry, instead of an entire market. For instance, if you invest in a particular company, consider how seasonal trends affect the products and services of that company and its competitors.

Take note, however, that the more industries you consider, the more variables come into play, and the effectiveness of seasonality as a deciding factor will drop. It is therefore better to focus on the seasonality of one industry at a time.

If you invest in a mutual fund or an exchange-traded fund or ETF, try to pinpoint the periods during the year in which the sector shows its strongest performance. Taking a close look at seasonal trends might also help those who are learning how to trade forex.

The difference between seasonality and ‘timing the market’ is another point an informed trader ought to bear in mind. Taking the current season into consideration is one thing; focusing on a short-term patterns to determine market highs and lows is quite another. Some experts believe that ‘timing the market’ is practically impossible.

Knowledge of a season’s effect on the market can inform your trading decisions, but it shouldn’t be the be-all and end-all of your investment strategy. When all’s said and done, seasonality isn’t a single, ‘guiding star’ for deciding trades to be used by traders, particularly those who are just starting out. Seasonality is just one of several other factors that you should consider when planning out your trades.

Learn techniques and strategies to help you become a more profitable and more consistent trader at TrackRecord Asia. Founded by professional traders, TrackRecord Asia puts you in touch with mentors and trainers with proven track records in investment banks and hedge funds, who will show you how to use a structured framework to form an effective investment process.

Achieve the level of trading performance you aspire to with TrackRecord. Get one month’s FREE subscription to our CIO’s Week Ahead Update and Traders’ Risk Call for updates and insights to give you the trading edge you need, today.

Sources:

https://www.investopedia.com/terms/s/seasonality.asp
http://www.blog.sanasecurities.com/seasonal-stocks-impact-seasonality-stock-prices/
https://finance.zacks.com/seasonal-stock-market-trends-5830.html
https://www.motifinvesting.com/blog/investing-based-seasonal-trends
https://learn.tradimo.com/advanced-stock-trading/how-seasonsa-holidays-affect-stocks
http://www.cbc.ca/news/business/taxes/playing-seasonal-investment-trends-to-your-advantage-1.1285947
https://www.investopedia.com/ask/answers/030415/how-does-seasonality-affect-financial-services-sector.asp
https://www.investopedia.com/articles/investing/101315/company-analysis-how-think-about-seasonality-trends.asp
https://www.ig.com/sg/trading-opportunities/2017/09/05/seasonal-trends-in-the-forex-market-39690

Uncategorized

Watch Out Below! The Euro Bears Are Taking Control

Posted on by TrackRecord Trading
  • The European Central Bank (ECB) opts for “lower for longer” quantitative easing and denies it is tapering.
  • Catalonia continues to be a risk.
  • US tax reforms continue to make progress.
  • Technically, the EUR/USD has broken decisively below the daily Ichimoku cloud.

Monetary Policy

The ECB opted to extend its asset purchase programme at the monthly rate of 30 billion euros, half of the current pace of 60 million billion per month, and committed to keeping key interest rates at current levels for “an extended period of time” last week. Markets took that as dovish and EUR sold off aggressively against the USD.

Buried within their statement is a sentence highlighting that the downside risks to the euro area growth outlook “relate primarily to global factors and developments in foreign exchange markets”. This is a clear indication that the ECB does not want a stronger EUR. The currency has appreciated more than 12% against the USD on the year and any rally will likely… Read more>>>

Learn to Trade

Making sense of the mechanics of Bitcoin

Posted on by TrackRecord Trading

BitCoin? WHAT THE…?!

What in the world is Bitcoin and why does it matter? Well, for one, blockchain technology could completely change the financial industry as we know it. Even if you find it hard to understand how it works, it doesn’t mean it will not change the way you live. How many of us actually understand how electricity magically lights up our homes at the flick of a switch? Did the average person know how the heck the internet works when they first got online?

Here’s a good 5-minute ish primer on how Bitcoin works –

Market Watch, SeekingAlpha

EUR: The Next Leg Lower Begins

Posted on by TrackRecord Trading

Summary:

  • Catalonia remains a risk.
  • The Fed is determined to continue hiking and ECB is unlikely to start tapering anytime soon.
  • Technically, EUR/USD has failed at key resistance levels.

Political Risk

The deadline given by the Prime Minister of Spain Rajoy to Catalan President Carles Puigdemont to clarify his declaration of independence has come and gone. The response from Puigdemont remains vague as he calls for more “dialogue”. The central government now gives him till Thursday to change his stance on secession or face the consequences.

Puigdemont has, essentially, painted himself into a corner. Going ahead with the independence declaration will likely lead to the central government invoking Article 155 of the constitution and suspending the authority of the Catalan government. Backing away from the declaration will provoke the ire of his supporters and lead to the unraveling of his pro-independence coalition.

Whichever path he takes, the political situation remains uncertain and will continue to weigh on the EUR.

Monetary Policy Divergence

From what the Federal Reserve Chair, Janet Yellen, has been telling the market all along and as recent as over the weekend, the Fed is going to continue hiking at a gradual pace and there will be one hike before the year ends (most likely in the December policy meeting).

Key in her comments over the weekend was her view on the lower than expected inflation numbers that have been the surprising the market all year – “My best guess is that these soft readings will not persist, and with the ongoing strengthening of labour markets, I expect inflation to move higher next year.”

Although inflation has remained subdued (or possibly, due to this), economic numbers have continued to be good and stocks continue to trade well. S&P 500 continue to make all-time highs on a regular basis. As long as this remain so, the Fed is unlikely to diverge from their much advertised plan.

Contrast this with Draghi’s relatively dovish stance of warning that it will take time for inflation to pick up and as such, the ECB needs to be patient. With EUR/USD trading near the highs of 2017, the policymakers will need to tread carefully in signaling any change in stance for fear of triggering an unwanted strengthening of the currency. Read more here>>>

Market Watch, SeekingAlpha

Is The EUR Retracement Over?

Posted on by TrackRecord Trading
  • Market pricing for one more rate hike before year end is still hovering around 70% probability.
  • Risk of Catalonia declaring independence from Spain is higher after the referendum over the weekend.
  • Technically, EUR/USD has reached short term support.
  • The Dollar Index is also running up against short term resistance on the daily chart.

Reasons for a lower EUR

Having called for a lower EUR and with the short term targets met, what are the reasons that could lead to more weakness in the currency?

Underpriced Fed expectations

The dot plot from the previous Federal Reserve Board meeting on 20 September showed that most of the voters are still expecting one more rate hike before the end of 2017.

Janet Yellen, chair of the Board, last week warned that “It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent” and the Fed “should also be wary of moving too gradually.” This is consistent with what the Fed has been trying to convey all this while i.e. barring drastically weaker than expected economic numbers, there will be one more rate hike in December.

Yet, market continues to underprice the probability of that rate hike (as shown below). Read more>>>

Market Watch, SeekingAlpha

The Euro Is Facing Short-Term Resistance

Posted on by TrackRecord Trading
  • Although Merkel’s party won the most votes in the elections, it is going to take a lot of time and negotiations for her to form a governing coalition
  • Market position is currently quite heavily long EUR (FXE) and short USD (UUP)
  • Technically, the EUR/USD is forming a short term top on the daily charts

Although exit polls show that Angela Merkel’s center-right Christian Democrat-led alliance has secured 33% of the overall votes, she is now faced with a daunting task of forming the next government as she does not have an outright majority and the leader of her coalition partner from the previous government, Martin Schulz of the Social Democrats, has declared that they will be going into opposition after garnering only 22% of the votes – their worst electoral result since 1949.

The rise of the Alternative für Deutschland ((AfD)) is particularly worrying as this is the first time that a far-right party has managed to win seats in the Bundestag since the immediate post-war period. In the previous election in 2013, the AfD could not even manage the minimum 5% required for a party to have any seats in the Bundestag but a surge in voter discontent over Merkel’s refugee policy has led to the party winning 13.5% of the votes this time round.

However the government is formed, the task of reaching a consensus to forge policies is all the more harder given that this is the first time since 1953 that six parties are poised to enter the Bundestag. Until a governing coalition is forged, political uncertainty remains and that is not something that a market likes. Read more here>>>

Market Watch, SeekingAlpha

Why The Swiss Franc Will Weaken Massively When The ECB Starts To Taper

Posted on by TrackRecord Trading

If you have been keeping track of our views, you will know that we went long EUR/CHF at 1.1163 and recently added to the position. We have articulated the reasons why we are bearish CHF before and continue to believe that it will be a theme for many weeks to come. We recently published an article on www.seekingalpha.com on the above. We believe so strongly in this trade because… Read more>>>

Market Watch, SeekingAlpha

CHF: Will The SNB Embrace The Weakening Currency?

Posted on by TrackRecord Trading
  • Swiss National Bank (SNB) meets tomorrow. The Swiss Franc (CHF) has weakened more than 5% since the last they met.
  • Given recent weak economic data (GDP, CPI and retail sales), the SNB has no reason to change its stance for continuing with the ultra easy monetary policy.
  • SNB President Jordan is unlikely to change his rhetoric about the “significant overvaluation” of CHF

The SNB meets tomorrow, and though the CHF has weakened in recent weeks, it is still in the zone of significant overvaluation. The SNB is unlikely to do anything other than stick to its current ultra easy monetary policy.

It is telling that even after all the uncertainties cause by North Korea, EurChf is trading close to its highest levels since the 1.2000 floor broke in early 2015.

As the world starts to remove stimulus (The BoC & US Fed have already started and ECB is considering tapering options) that was implemented to cope with emergency conditions, the SNB is likely to be one of the last to exit (a toss up between BoJ & SNB).

Consequently, the Chf is likely to continue on its weakening trend for the months ahead. As long as 1.1050 is not violated, the EurChf is technically headed for 1.2000 and beyond.

Monthly EURCHF Ichimoku Chart – [Source : Investing.com]

Disclosure: I am/we are long EURCHF.

Market Watch, SeekingAlpha

It’s Not Too Late To Hop On The Canadian Dollar Gravy Train

Posted on by TrackRecord Trading
  • Last week, the Bank of Canada surprised the market by hiking the benchmark interest rates by 0.25% to 1.00%
  • Economic data from Canada has continued to surprise to the upside
  • Fundamentals are strong, and so are the technicals (see charts below)
  • Breaking to new lows last seen in mid 2015, the trend is set to continue.

The BoC surprised the market with a hike and a statement that shows that their intention of removing “considerable” amount of stimulus from the system remains. This is the second hike of this cycle which started with the hike in July.

In the age of ultra dovish central bankers who have a tendency to wait and see and hike at a glacial pace if at all, this is as hawkish as you can get when you are living in a world full of uncertainties such as Trump policies/tweets and the recent North Korean tensions.

Clearly, the economic data is giving the BoC the confidence to do this. Their statement spoke of stronger than expected growth both in Canada and globally. With strong commodity prices of late, the Canadian dollar (NYSEARCA:CAD) clearly has all the fundamentals aligned for the strengthening trend to continue.

With growth continuing to be strong (as evidenced by the latest GDP YoY growth of 4.5% vs market expectations of 3.7% released two weeks ago) and financial conditions remaining easy (stocks making new highs every other week), the fundamental reasons for continued CAD outperformance is strong.

What about the technicals?

Weekly Ichimoku Chart for USD/CAD (Source : Investing.com – Stock Market Quotes & Financial News)

 

With the decisive break below the previous two lows (indicated by blue horizontal on chart), as long as 1.2450 resistance is not breached, the downtrend in USD/CAD is set to continue. I would be selling any bounces to the 1.2200 handle with a stop above 1.2450. The near term support would be at 1.1960 with an eventual target of 1.1000.

Given that the fundamentals, technicals and central bank policy are pointing in the same direction, it is not too late to jump onto the train as it is early days yet!

Disclosure: I am/we are short USD/CAD.

Additional disclosure: …and looking to sell more!