2022 has certainly provided us with some fantastic trading opportunities, those who were prepared and had planned their markets have no doubt been presented with some trends to travel along be them bull or bear. The overhanging themes of the current economic cycle continue to be inflation and COVID and the overall disruption to supply chains. So many countries are attempting to return to normal but continue to be impacted by COVID issues. I note that in Sydney there is a real push to get back to how things were, but many families are being isolated again as school age children distribute the virus.

The geopolitical landscape needs no explanation as we see the issue in the Ukraine extend longer than many expected and to date it has been relatively “contained” in terms of spreading into wider Europe. This can change instantly and still present major concerns for the markets. However, as markets do, they tend to process events and then price accordingly so the downside of equities and the upside for commodities have paused ever so slightly and now await the next chapter.

If we list conditions that trend traders like us prefer, volatility is one we would welcome to a point. The good thing is that markets move, and in many cases a lot. This is tempered by the issue of position sizing and stop management in a highly fluid intra-day environment. It is times like this we must adapt as being purely end of day traders, means there can be wide stops and of course this leads to smaller position sizes. I encourage you to work in with Mat as his lessons and coaching show practically how to combine small and big picture techniques. Its times like this you need them.

To see this visually, Chart 1 shows us the VIX index which attempts to track volatility of equity markets. We can clearly see that it has been increasing (with spikes) so this flows through to your trading plans in the form of entry and stop loss management strategies. It’s worth noting the current VIX figures are less than half of what they were at the start of COVID in 2020.

Chart 1 – Weekly Bar Chart VIX – CBOE

As primarily a commodities trader there has been a broad-based increase in nearly all commodities as concerns of supply and increased demand due to the restarting of economies has created a perfect storm. I can’t recall a recent time where we have had both the economic and geopolitical drivers pushing the same way at the same time. If you have noticed a need to adjust trading plans you are not alone. Imagine being a nickel trader and seeing your market doubled overnight?

An observation that is worth calling out is the US Dollar Index. Typically, as most commodities are priced in USD, as the USD rises the commodities will fall, but currently we see a rising USD and a broadly bullish commodities space. You should study historical examples of where this occurs and what happens when they decouple again. If we review the current cycles, we see the COVID drop and the recent gains. The price has retraced 66% but you may want to examine the time down and up (to the recent March high). The relationship in calendar and trading days is interesting.

Chart 2 – Weekly Bar Chart VIX DX-Spotv

Finally, if we jump into my market of choice, we see Crude has been making incredible % moves in short periods of time. $40 per barrel moves in under two weeks is great profits if you can be on the right side of them. However, getting set and staying in have proven more challenging.

Chart 3– Daily Bar Chart Crude Oil CL-Spot1

My comments from last year show there was an expectation of a strong move, but the easier profits were from December last year as opposed to late February / March period.

I will be keenly watching the two 50% levels I have marked on the chart. The fact we are balancing around these prices (and 50% levels) at our seasonal time again proves how March is a very tradeable month for Crude.

If we can combine this with our knowledge of the birth of contract (30 March 1983), we can test the pattern I have seen occur over many years. Crude will often make a run (long or short) from the March seasonal date into the early part of April. There is a strong expectation of this occurring again this year (in my mind). This is also based on patterns that also relate to Master Time Cycles.

The next few weeks will likely dictate the overall trends for the year. The seasonal aspect of time combined with strong price pressure will be the techniques that many setups will be built on this year.

Good Trading

Aaron Lynch