The Value of Specialisation
2024 has kicked off with plenty of action and we are barely a month into the new year! I trust you all enjoyed the New Year’s break and are ready for the successes and challenges this year will bring. In my personal life there have been several cycles that have come to their completion and I am looking forward to what comes next.
As always, there has been significant noise, news and distractions placed in front of us, all of which can present ways to make trading harder than it needs to be, this this is where goals, reviewing last year’s highs and lows and a clear plan for 2024 all come in.
No doubt you recall the journey we undertook reviewing the US Financial Index in 2023 with the main driver being rising inflation and the pressures it places on interest rates. The cycle of rates rising is now being framed against possible reductions as inflation comes under control, or has it?
The cost of money to economies is one of the main inputs that we can measure and subsequently the impacts, banks are at that forefront of our capitalist tendencies. If we quickly review the Australian market the index XFJ captures our financial stocks.
Chart 1 shows us the position of this index, perched ever so close to the recent highs of 2022, yet we have still not reached the heights of the GFC high of 2007. We would anticipate that the current area is one we should be researching for price (and time) pressure points for possible clusters.
Chart 1- XFJ Daily Bar Chart
We discussed the notion of the Christmas rally and that has certainly been delivered across many markets globally. The DJUSFN is also positioned at highs with price pressure in play. Chart 2 shows us the last 3 years where the market has basically acted like a large ABC point with the Covid low of 2020 acting as Point A, a move of just under two years ran into January 2022.
Inflation became the main theme and in October 2022 traded back to the 50% level and false broke that level to give us what we could call Point C (again on a very large perspective).
Chart 2- DJUSFN Daily Bar Chart
October 2023 gave us a new springboard into the Christmas rally, we now see this index approximately 1/8 of the range of the highs of January 2022. Keep in mind that this index represents many individual stocks on the US market all of which can be analysed and reviewed, and we undertook that last year on certain markets (also against the backdrop of the S&P 500 that has made record highs in 2024).
Morgan Stanley MS.NYSE was a market we studied as part of our discussion in 2023. My hope is that this discussion has encouraged you to look at markets like this, and also demonstrated the value in specialisation. There are more than enough good quality trades on this market to keep us engaged.
Chart 3 shows the recent price action on Morgan Stanley, and we can see there was a run into the new year and a high made on 2 January 2024 at $94.15. If you expand your chart, you will see the July top at approximately $95 so you might consider a double top and logical resistance. More interesting to us as Gann analysts is the low of the GFC back in 2008 at $6.71 which may be calling the tune in 2024. The lows resistance card tells us to look at multiples of that low and look for price clusters.
Approximately 14 multiples of $6.71 gives us the current high where the market has since paused then declined. Chart 3 shows us the orange horizontal lines as increments of $6.71.
Chart 3- MS.NYSE Daily Bar Chart
If you jump back to the December 2023 article and review the notes made, there was a discussion around the termination of a time cycle on 1 January, however, markets were closed and the long trade we were tracking came to its end as the lows were broken on 3 January 2024.
If we review Reward to Risk Ratio on this position, Chart 4 shows us what can be achieved when we apply the methods and rules we have in our toolbox. The position was a reward of approximately $20 USD per share and a 29 to 1 Reward to Risk scenario.
Chart 4- MS.NYSE Daily Bar Chart
I will move onto new markets to discuss in 2024 but I feel this is a great way to leave our discussion on this market. If there is a market, you would like to discuss in the newsletters I am always open to suggestions. I wish you all the success and rewards for 2024 and as we commence the new year let’s hope it’s better, brighter, happier and healthier for us all.
Good Trading
Aaron Lynch