A wrap up of 2018 and a look into 2019
By Chloe Edwards, Trade With Precision
As we approach the end of the year, I’m taking stock of the major moves of 2018 and preparing for the year ahead.
All three major US share indices – NDAQ 100, US 30 and US SPX 500 - were performing strongly in 2018 until October. But the losses sustained in the few months since leave prices on the US SXP 500 and US 30 sitting at lower levels than at the start of the year. It looks likely then that 2018 prices could close lower than they opened, which is a rare occurrence, since the crash of 2008.
The monthly chart of the US SPX 500 below shows the long-term uptrend with a support level sitting near current price at 2,530. If this level holds, we could see a possible recovery at the start of 2019. But if the level breaks, in my view we could potentially see a bigger correction down to 2,300 or even lower in the first few months of 2019.
If we take a look at the daily chart of the US SPX 500 we see that the downtrend has begun, with lower highs and lower lows in price action, along with the re-ordering and now bearish geometry of the moving averages (MAs).
According to the IMF and Federal Reserve, US economic growth is expected to slow from 3% in 2018 to 2.5% for 2019. This, combined with other political uncertainty in the US, leads me to believe that the major US indices could see more downside movement in the coming months. As such my game plan in Q1 is to look for opportunities to short these indices, for example, on the US SPX 500 a pullback up to 2,600 which could coincide with the declining 10 and 20 MAs, would interest me as a potential shorting opportunity.
If we now look at the global markets, they have dropped further than their US counterparts with the German 30 down almost 20% since the start of 2018. While this downtrend is in place, I will continue to look for short opportunities into 2019.
Precious metals has had a mixed year, with Gold, Silver and Platinum all sliding since Jan 2018. Platinum is the worst performer, with lower demand impacting prices. The question is, how much further can they fall given prices are already teetering at or below the cost of production? However, a constricted supply could eventually lead to a recovery in 2019.
Gold could be already starting to show potential for recovery, with the daily and weekly charts now starting to trend to the upside and price sitting just above a support level at the $1,235 mark.
Palladium is looking to be an exception to the commodity downtrend. Having seen a drop in value for the first half of 2018, prices have since recovered and the monthly, weekly and daily charts are all showing a healthy uptrend.
After a strong start to the year, the price of Crude Oil has been in freefall since October, as seen in both Brent and West Texas charts. Brent could be heading down to the $50 per barrel mark based on current trends. And, if this level breaks it could hit $45, while West Texas may be headed even lower to $42. While the bearish trends are intact, I will be continuing to look for short opportunities into 2019.
In the currency markets, US dollar strength has been the undercurrent for the year, and this looks set to continue into early 2019. EUR/USD has been consolidating at current levels between 1.1260 and 1.1430 for several weeks. This is an often-tested horizontal level. If it breaks to the downside, I am looking for price to resume its preceding downtrend and potentially return to the lows of 2015/16 at 1.050. Alternatively, if price manages to push through to the upside from here, we could see a recovery even up to 1.17 before looking for further weakness.
With Brexit options still being argued on all sides, GBP currently looks bearish, and I am looking for this downtrend to continue into Q1 of 2019, with the lows of 1.2000 against the USD being in my opinion a realistic prospect for now.
USD remains strong against the Canadian Dollar and looks set to continue the uptrend. However, against the Japanese Yen price has hit resistance at 114 and lower highs are just starting to creep in on the daily timeframe, while the recent lows of 112.24 are being challenged. This could see the beginning of a downtrend into 2019, and price returning to 108 or even 105 over the course of the next year.
Finally, both the Australian and New Zealand Dollars have been weak this year and are currently sitting just below resistance levels. I am now anticipating a return to the downside for the early part of 2019, with the AUD currently looking to me like the weaker of the two currencies.
Thank you for reading and wishing you a very happy festive season and prosperous New Year.
Trade With Precision