ADS Securities Market Strategy. 2013: The Year To Be Just a Moving Average Trader

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1 ADS Securities Market Strategy Prepared by Max Knudsen, Chief Market Strategist 18 th December : The Year To Be Just a Moving Average Trader With close to 3000 economic data release, 60 central bank meetings and seven months of talking about tapering, some of the most successful traders in 2013 were the ones who just stuck to the basics was much like any other year for traders. Too much news, too much data, too much noise, too much research, and too many opinions the important question is whether we can make any sense of what happened and learn from it. Markets moved, as they always do, presenting and taking away trading opportunities. Some investors were successful, others who tried to understand the highly complex political, economic and social backgrounds to the markets, were not. When we review 2013 we can see that nearly all the major market rallies and sell offs were captured by simple moving average signals. Signals generated by the markets themselves. For example, in January a break of the 40 month average in EURJPY provided a buy signal in the pair at EURJPY went on from this signal to increase by 24% in 2013, offering the largest price gain of all the major FX pairs. But these signals did not just apply to the Forex market alone. From FX to equities to commodities, 2013 was the year to keep it simple. Economic Data in How much is too much? In 2013 economic data showed a trend of continued improvement in the UK economy. Other data showed a trend of falling inflation in Europe and the US. Unemployment data worsened over the year in Europe but significantly improved in the US, dropping from 7.7% down to 7.0%. However the overriding influence of economic data was the sheer amount of information released. Collectively the UK, US, Germany, Italy, Spain, France, the Eurozone, Canada, Australia, Japan and China published 241 important economic statistics each month covering measures of growth, unemployment, employment, consumer inflation, producer inflation, retail sales, hourly earnings, housing sales, housing prices, construction spending, manufacturing prices, factory and durable goods orders, trade balance, and inflation. On a yearly basis, this means investors had to process and contend with a staggering 2,892 headline data releases from these economies. Number of economic data releases by country in 2013 Market US Europe UK Australia Japan Canada China Total Monthly Annually ,892

2 Tapering Tiredness On the news front, investors were presented with the Cypriot banking system shut down in March followed by the EU s onerous bailout terms. In April the Japanese government embarked on the biggest round of financial stimulus the world has ever seen. However the dominant news for more than half the year started in May when the Chairman of the US Federal Reserve (Fed) introduced their proposal for the tapering of fiscal stimulus. This prompted seven months of speculation and commentary. This created uncertainty and market volatility as traders hung on to every, often contradictory, words spoken by FOMC members. More than 60 US economic data releases from were scrutinized on a daily basis looking for the magic number which would indicate whether tapering would or would not start. Too Many Opinions Professional forecasters and commentators had a busy Markets over reacted and under reacted providing contradiction and very little consensus. Taking all the news and data into account, the forecast of 36 of the industry s top firms was for a lower EURJPY and USDJPY in Q2. They were wrong and both markets ended higher. In Q4, the consensus of the experts opinions was again for lower in EURJPY, down to Again these opinions were wrong. EURJPY rallied and in December reached almost to Similarly the consensus forecast was for a lower EURUSD and GBPUSD in Q4, but both markets rallied through to December to make new highs for the year. Compared to professional forecasters the average trader fared better in these currencies. Supported by bullish moving average signals, the average trader would have been successfully positioned for a continued rally in Q4 in EURJPY and GBPUSD and EURUSD. 3 month forecast of 36 firms on September 30, 2013 Period EURUSD USDJPY EURJPY GBPUSD USDCHF Consensus Q Closing Price 12 Dec Source: FX week September 30 th 2013.

3 Markets in 2013 FX So how is the year ending? In EURUSD the net change was just plus 4%. It was the Yen that offered the most dynamic trading opportunity. In addition to the 24% rally in EURJPY, USDJPY gained 19% and GBPJPY 20%. In fact the gain from January s opening in USDJPY makes 2013 the strongest yearly improvement in four decades. Each of these Yen opportunities was captured with a bullish moving average signal. Precious Metals Bigger opportunities for price changes were offered in some commodities, like Gold and Silver. In 2013 these markets recorded YTD losses of 26% and 34% respectively. In Gold, after prices increased more than five times from the low in 2001, this year was the first drop in 12 years. For silver, 2013 was the largest annual loss since the late 1970 s. Although the view throughout the year was that Gold was cheap and a good buy, trading the bearish moving average signal from January reliably proved otherwise. Equities Equally significant moves occurred in Equities in For the 5 th year in a row both the DOW and S&P produced gains, up 22% and 27% respectively. For the S&P 2013 was in fact the largest annual price gain in decades, up 380 points from January and the rally was captured by a bullish average signal from January. Gains in Europe were smaller. The DAX recorded a 20% increase in the index, and Euro Stoxx saw a 12% gain in Both indices continued a 2 nd year of improvement in a row and both 2013 rallies were tradable with a bullish 40 week moving average signal. Sticking to the basics For the average trader, standing aside from the data, news and noise of 2013, FX, commodities and equity indices offered many clear and successful opportunities, as indicated in the charts below.

4 EURJPY The 40 month average broadly correlated for the last 20 years. In January the break above the average at provided a bullish signal throughout all of The December high USDJPY A 20 month average has been highly correlated with every rally and bear market since the 1980 s. January started with a bullish signal and prices at The December high has been GBPJPY For more than 3 decades the 20 month average has been highly correlated with all the major rallies and bear markets. January started with a bullish signal and prices at December s high has been

5 GBPUSD The 20 week average has been highly correlated since January s break at was followed by a sell off to August s bullish signal at was followed by a rally to in December EURUSD The 20 day average has provided buy and sell signals that have reflected each of the year s rallies and sell offs. It has provided 6 successful buys and 5 successful sells AUDUSD The 40 day average in AUDUSD has been a good indicator of the main price changes in 2013 providing 3 sell and 2 buys. The most recent being a sell signal on the break of the average at.9473 on November 8 th

6 GOLD In January 2013, Gold was just breaking below its 30 week average providing a bearish signal for sentiment from US$1,630. Gold has since fallen US$450 S&P The 50 week average has been mostly successful in capturing the swings in bullish and bearish sentiment in the past 5 years. January 2013 started at 1.467, with the average proving a bullish signal DAX For more than 5 years the 40 week average has provided buy and sell signals closely correlated with rallies and bear markets in DAX. January 2013 started the year above the average with a bullish signal from 7,729

7 The Moving Average Trader in was a year of some strong trends and broad average moves, providing good opportunities for the traders, so what will happen in 2014? Moving averages strip away the noise of economic data, news, and market fluctuations. They smooth out the flow of trading and show what a market is doing on average. There is no special weight given to any particular aspect of the market, and it is sometimes this average assessment of market activity that can be the most revealing and offer the clearest trades. There is every potential for the 2013 trends to continue at least into Q1 next year. Moving average signals are one of the key inputs in the ADS Securities FIRST CALL sentiment analysis. They can sometimes provide the sole reason for our bullish or bearish forecasts. At the start of January 2014 we will publish our new forecasts for Q1 which will include an assessment and forecast for any average signals going into next year. Have a Happy New Trading Year FIRST CALL, ADS Securities s online research service is available at securities.com. This communication is intended solely for the person or entity to whom it is addressed. Such person or entity is prohibited from disseminating, distributing, transmitting or forwarding this communication to any other person or entity. This communication may not be used in whole or in part by any person or entity which it was not originally directed to by ADS Securities LLC ( ADSS, us or we ). All opinions, news, analysis, prices or other information contained in this communication are provided as general market commentary and does not constitute investment advice, nor a solicitation or recommendation for you to buy or sell any over the counter product or other financial instrument. Further, this information has been prepared without regard to any specific investment objectives or financial position (including deposit size, leverage, risk appetite and risk exposure) of any specific person. Any reference to historical price movements is informational and based on our analysis. We do not represent or warranty that any such movements are likely to occur in the future, as past performance is not necessarily indicative of future results. While we believe the information contained herein to be reliable, we do not guarantee its accuracy or completeness. You understand that we do not produce the information with the intent of impacting your investment decisions, therefore, you release us from any liability for any losses, including without limitation, any loss of profit you may incur as a result of reliance on such information or entering into any transaction. By receiving this material, you confirm and agree that you have read, received and understood ADSS s Risk Disclosure