We recently published the 2019 End of Year Special Edition of the Weekly Macro Themes report - a summary of some of the best, worst, and most notable charts of 2019 (and the ones to watch in 2020).
This article is a follow up to the "Charts That Worked" ...with an important look at the charts and calls that *didn't* work.
Basically it's a summary of the worst calls and charts of the year - either where the chart itself missed the mark on the case (long/bullish or short/bearish) or where it was a major piece of the puzzle in a key investment or macro call. It's an important exercise to go through, not only from a performance standpoint, but also because it helps shed light on some of the key themes and moving parts for global markets in the year ahead.
Format note: each chart has a comment on the chart, the date when it first appeared, and a quote from the original report which it appeared in.
1. After (correctly) turning bullish on the US dollar in early 2018 I decided to abandon the bullish view early this year as market breadth indicators began to rollover (along with what I saw as unsustainable macro and rates divergence between the US and the rest of the world). I would say I was right to abandon the US dollar bull call since the DXY didn’t go up much, but to the extent that meant being bearish was wrong as the US Dollar traded in a tight but uptrending range with many false breaks in either direction.
(18 Jan 2019) “market breadth is rolling over for the US dollar against G10 currencies. Looking at the recent history of 50dma breadth and further history on the 200dma breadth chart, this type of breakdown in breadth often shows up around the start of a major move and/or trend change. This is enough to abandon my previously bullish USD view”
2. In many ways the other side of the coin so to say, I highlighted the bullish case for EMFX early in the year as the valuation, market breadth, and intermarkets seemed to line up. I was initially right, but ultimately wrong (albeit I did change the view later in the year). I would say though the outlook is much better going into 2020 (valuation, market breadth, macro).
(18 Jan 2019) “Looking specifically at EMFX market breadth, the 200dma breadth indicator has spiked in recent weeks from washed out levels, and the EMFX index has stirred from very tight range trading. This previous compression in price volatility is just the type of thing that can set the scene for an explosive breakout. The action in Asian FX and EM Equities breadth appears to be confirming the case for a turnaround here, so this is definitely one to have on the radar.”
3. I turned bullish too early on AUDUSD partly due to the initial rebound in this indicator (along with improved valuations and contrarian sentiment signals). The domestic (RBA rate cuts) and USD resilience stymied that call.
(19 Apr 2019) “Typically the Aussie marches to a similar tune as China/EM/commodities/general risk appetite. The chart below of the reflatometer (200-day moving average breadth for global equities, commodities, and sovereign bonds [inverted]) has turned up significantly and this is typically a bullish sign”
4. Similarly I got too excited with the initial rally in Copper, but that’s looking better now.
(22 Feb 2019) “After bouncing off support, copper is starting to show signs of life (and possible short squeeze)”
5. Energy stocks relative performance never caught back up to oil. Maybe the oil price needed to go higher, maybe all of those companies happened to be poor quality, maybe the rise of ESG has disproportionately punished the sector, maybe the hurdle of strong tech stocks is too high, or maybe it just needs more time. Either way it is one in the “yet to happen” pile.
(22 Feb 2019) “Should the bullish scenario play through for oil, energy stocks could be a key beneficiary after lagging substantially, and trading to still quite low absolute and relative valuations.”
6. The value of value stocks: many similarities to the previous one, value stocks failed to gain the upper hand against growth stocks, albeit you could say there was at least a shot across the bows with the momentum meltdown. Not to be discouraged, I’ve got another chart on this in the ones to watch for 2020 section later in this report as some macro catalysts loom.
(1 Mar 2019) “value is cheaper than usual vs growth (or said differently, the most expensive stocks are trading more expensively than usual compared to the bottom end of town). It could take time, but logic says this tilts the odds in favour of value outperforming growth”
Thanks for your interest, please get in contact if you have any questions.
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