Last week I shared with you some of my Best Charts of 2021... i.e. the charts and calls that worked really well in either building the picture or presenting a specific idea.
Of course, it wouldn’t be complete without a look at some of the charts that *didn’t* work (or shall we say the ones that worked “less well!”).
As noted in my previous article, I think it's good to review what worked well -- I believe in learning from success. But naturally it's also good to review what didn't work, to see if we can improve processes, thinking, and to make sure we stay humble.
But also it's important to keep the gaze looking forward: some of the themes and ideas listed below might not have worked this year, but they may well become all the more relevant in the months and years ahead.
Hope you find these interesting and informative...
These charts were featured in my just-released 2021 End of Year Special Report - do check it out when you get a chance (free download as a holiday treat!).
n.b. I have updated the charts with the latest data (in a few cases the original idea has actually come entirely full-circle). Also on formatting: the italic text is a quote from the report in which the chart originally appeared.
1. US Dollar Index: The US dollar defied my bearish expectations. In hindsight sentiment/positioning was very lopsided (extreme crowding to the short side) and this is in the context of what is now basically a half-decade long trading range.
“Retain the bearish medium-term view on the US dollar as the longer-term cycles play through, expect valuation to overshoot to the downside (now slightly cheap), and yield support has dissipated. That said, the DXY is still sitting around a key support level and sentiment/positioning have gone from extreme bullish to extreme bearish now, and technicals look oversold…” (6 Jan 2021)
2. Emerging Market Equities: Similarly, stuck to my guns on the bullish medium/longer-term view on EM (wrong for now) -- albeit despite having a short-term risk-watch in place.
“…remain bullish EM equities on the basis of still reasonable valuations (absolute and relative) and monetary tailwinds - see chart. It’s also internally consistent with the view on commodities and the US dollar (EM equities tend to benefit should the views there play out). However, sentiment has become quite stretched” (6 Jan 2021)
3. Emerging Market Currencies: Closely related to the previous two was the bullish medium/longer-term view on EMFX, which was underpinned by valuations. Higher commodity prices did come through but offered little solace in the face of virus resurgences, US dollar resurgence, and investors re-evaluating their previously consensus bullish stance on EM.
“on the medium/longer-term case, the EMFX composite valuation indicator is still on the cheap side. Meanwhile as previously noted, I am still happy with the bearish medium-term view on the US dollar, and bullish medium/longer term view on commodities; both of which help the case here. Also, EM asset sentiment has improved notably, from a flows perspective this can help trigger a self-reinforcing positive cycle” (29 Jan 2021)
>> These charts were featured in our 2021 End of Year Special Report.
4. China A-Shares: This one didn’t not work, but just didn’t play out the way I suggested could happen. In hindsight the macro-policy backdrop in China continued down a distinctly more restrained path relative to the rest of the world as they attempted to avoid past mistakes of monetary overstimulation.
“On the topic of breakouts, another market attempting a major breakout is the Shanghai Composite (i.e. China A-Shares). We’ve already seen China-sensitive metals iron ore and copper making explosive breakouts, so it’s logical to ask if this is the next step.” (15 Jan 2021)
5. Global Value vs Growth Equities: False dawn. Stuck to my guns on value vs growth both US and global and added a lot more nuance/indicators to the mix, but it was not to be – at least not just yet.
“the value vs growth underperformance secular trend has been a global phenomenon, and the turn likewise will probably be seen globally. Indeed, already the breadth of countries where value is outperforming growth on an annual basis has started to turn up from multi-year lows. I am wary of the risk of false dawns, but tempted to say it’s different this time.” (15 Jan 2021)
6. Global ex-US vs US Equities: Similarly, saw a false dawn in global vs US equities. A key driver was the chart below – which shows the massive tilt by US equities to tech related stocks (which set a very high performance hurdle for basically everything else).
“Another aspect I wanted to highlight on the tactical front is how the Rest of the World (RoW) has a much greater weight to cyclically sensitive stocks at almost 50% [i.e. energy, financials, industrials, materials] vs about a quarter for the US. It’s this part of the market I expect to perform better this year and going forward as the cyclical/real-economy picture starts to improve on the back of vaccination/normalization and historic stimulus efforts. I also think the one-off pandemic benefits to Tech (US = ~50%, RoW = ~30%) is going to be hard to replicate.” (15 Jan 2021)
Thanks for reading!
This is an excerpt from my 2021 End of Year Special report - click through to download a free copy of the report.
Best regards
Callum Thomas
Head of Research and Founder of Topdown Charts
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Substack https://topdowncharts.substack.com/
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