A Year to Remember!
As we arrive at the silly season, if you are like me you are starting to see the pace accelerate for tasks and projects that must be completed by year-end. Lockdown in many parts of Australia has also presented an element of lost time, we speed up in day-to-day life so we feel like we can take a well-earned break at the end of the year.
As we know history repeats, and regardless of the COVID impacts on our “normal lives” we know the end of the year mentally represents a finish line and maybe in the new year a renewal of sorts. Markets have cycles like the year as well, but they don’t start and end on the 1st of January and 31st December for the beginning and end of cycles. Wishful thinking, but that is likely a bit too easy. So, therefore, we are forced to measure where we are in the cycle of markets and then we are forced to look at the cycles on all the different time frames. Challenging indeed.
If we review 2021, we have seen a historically strong bullish market within the framework of a major global pandemic. Regardless of what has driven markets higher in 2021, as they say, that’s in the bank. Cheap money, asset bubbles, and central bank intervention have all been topical but again have meant investors, super funds, and traders who have been biased to long trades within the major asset classes have seen good opportunities. There are of course some out there who will have not made money this year. That is most likely down to trade management and trend selection, and it is a reminder that even in the best of markets, losing money is a habit and a skill some seem to master.
This year I focused on the Nasdaq and its twists and turns in this series of articles. It has become the serious market for serious players as it represents so many of the globe’s best and brightest businesses and the money that follows that. I would encourage you to review each month’s articles with the view of reading them and reviewing the outcomes. The benefit of using hindsight to learn is a valuable one and of course, David suggests when we use hindsight regularly enough we can use it as foresight.
Chart 1 is a monthly swing chart which allows a big picture take on the current position. Clearly, in an uptrend, the ranges to the upside are contracting and expanding, downside ranges gets me wondering whether the current move down is the beginning of a new cycle or whether are we setting up for a Christmas rally?
Chart 1 – Monthly Bar Chart EN-Spotv
In the current market, I hear different consensus on where markets will go in 2021. The best consensus I use is, who is in control of pullbacks the bulls or the bears? Pullbacks occur in both directions and can be bullish and bearish, they can help us understand if the trend that is in place is starting to fade under pressure. Gann spoke of the 50% retracement and its power, hopefully, that is clear to you. If we look at the pullbacks in the context of the bullish market we have seen, rarely if ever, using major ranges have the bears been able to take the price action back through a 50% level. We see the same currently in Chart 2 as we see two retracements marked, a smaller and bigger picture. The smaller picture is right now at 50% and at an old top.
The larger shows we have some distance to go at approximately 14487 which is also previous support. Until we see price action confirmed below that level with some volume and momentum to back it up, we may not yet be ready to see the major correction many are suggesting.
Chart 2 – Daily Bar Chart EN-Spotv
When we want to see big results, we need to focus on big things, the All-Time Low of any market is critical for future calculations. The tech wreck low of 797.5 is still valid in today’s market. The current All-Time High (and outside reversal day signal bar) is 16767.5.
If we measure the relationship between the two (16767.5 / 797.5) we see approximately 21 multiples of the low giving us the current high. Chart 3 shows that position and I will be watching for how it reacts in terms of this low as a square in the coming period.
Chart 3 – Daily Bar Chart EN-Spotv
I trust we can all use the time ahead to refresh, recharge and renew ourselves with our loved ones. I hope you have enjoyed this year’s take on the Nasdaq and take this opportunity to wish you a Merry Christmas and a wonderful 2022.
Good Trading
Aaron Lynch