Charts and Patterns Q2 2017 Commentary
|Instruments traded:||FX Spot and CFDs|
|Asset Classes:||FX, Equity Indices, Commodities|
|FX, Equity Indices, Commodities||Trends and Technicals|
|Quarterly Return:||-1.88% (net of service fee but gross of any applicable performance fee)|
|Q1 2017 daily return volatility:||0.57%|
|Average Trades per week:||3.8 (since inception)|
The second quarter of 2017 (Q2) continued to be a period of consolidation for many non-equity assets. Equity indices continued to remain resilient and were the best trending market. Commodities, including soft commodities and metals, weakened.
Limited volatility, a breakdown in some of typical market correlations and range bound markets made for difficult trading conditions for the trading style of Charts and Patterns. The most obvious correlation discrepancy has been between gold and the US dollar, whereby if the US dollar is weak it is generally expected for gold to strengthen, and vice-versa. In contrast, this quarter both gold and the US dollar were weak in synchronicity.
In the second quarter, the trading strategy produced a slightly negative return of -1.88%. Looking at the positions, a gold versus Australian dollar position reached its first profit target and was partially closed. The remaining position eventually detracted was closed due to the weakness in gold. The retracement of gold has not benefited the positions that were held from the first quarter and these have both been closed now for small profits.
Equity indices have been the main trending market for the quarter but the moves have been difficult to catch under the Charts and Patters trading style. There were limited retracements to allow buying opportunities and when there was a correction the moves tended to be very aggressive. In Q2 a position in the EURO STOXX was stopped out but a similar position in the IBEX was able to return a small profit.
The soft commodities continued to sell off during the quarter and provided few trading opportunities. Charts and Patterns is expecting these downside moves to be limited and would prefer to wait for buying opportunities.
Forex trades have been a lower priority in Q2 due to the lack of trends in currency pairs and many currencies range bound.
At the start of the third quarter, it is the strategy manager’s view that the equity indices will move higher in the short term but is also expecting a larger correction in equity indices later in the year.
The strategy manager believes the outlook for commodities is starting to look more positive and there are several signs that some commodities have bottomed and will start another bullish leg. This could provide some trading opportunities during the next quarter.
In the forex market the Japanese yen pairs are expected to remain bullish in the short term and will provide buying opportunities on retracements.