Saturday, December 28, 2013

Looking at the big picture

Twelve months ago I commented on how the markets had been tricky for a couple of years, mainly due to a higher a higher general level of volatility and/or a lack of market direction. I also went on to say that "They also fill a trend follower (such as myself) with a degree of anticipation, as no doubt a pronounced trend will start in some, or maybe all, of these markets in 2013, which will no doubt fuel profit-generating trends on shorter timeframes, such as the daily timeframe that I predominantly use."

Below are the charts of the same indices one year on. These are simple, long-term monthly charts which place any trend on a daily timeframe into context.

First up, the UK FTSE. This has clearly lagged compared to other indices, some of which have moved out to all time highs as we will see. However, there has been a volatile move upwards in the year. The FTSE has a number of big cap miners and resource stocks which have generally under-performed in 2013. The index has also come up against prior levels of resistance which so far it has been unable to overcome.

The German DAX has been on a tear during 2013. Again, there was a pause during early summer along with the other major markets (and which was around or just above the 2000 and 2007 previous highs), but since then it has convincingly broken out to all-time highs.

I do not trade Japanese stocks, however since the late 80's/early 90's peak, the Nikkei has been a prolonged slump. After bottoming in early 2009, the index has been in a wide range until the end of last year, when it finally starting trending up. There was a sharp rise in the early part of 2013, before there was increased volatility and an abrupt halt to the uptrend in May. However, those highs got taken out this month.

The Nasdaq continued its march upwards back to levels not seen since 2000. Anyone trying to pick a top in the market would have suffered repeated losses. A great example of a chart where you simply go along for the ride.

Finally, the S&P 500, which in a similar vein to the German DAX, has broken out to levels well above the 2000 and 2007 previous highs.

Seeing charts like this clearly show why it has been difficult to garner profits generally from shorting stocks, or the indices themselves. The have been downtrends out there (witness some of the UK mining stocks, for example), but these have been the exception.

As for 2014, I have no idea what will happen. However, the markets are clearly showing you what is currently going on, and the direction in which they are moving. These uptrends could stop next month, they could keep on going for...who knows how long? A trend followers job is to simply observe what is happening in the markets and act on it - it is a reactionary way to trade. Based on these charts, it is clear in which direction you should have been trading, both over the past twelve months and into the future, until such point in time when the markets tell you otherwise.

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