Hello, we’re coming to the close of 2021 so there’s a change this week – Welcome to the Key To Markets Year in Review..
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1-year performance as of December 20, 2021. 11:00 GMT
Source: finviz.com
Source: FinViz
Overall it was a good year for the US dollar as markets positioned for tapering. The yen was among the weakest, as was the Swiss franc, as traders dropped haven trades. The pound had a good year as part of the global re-opening trade, except vs the USD, while the euro sold off with the ECB remaining dovish and amid a slower economic recovery in Europe. The Aussie and New Zealand dollar unwound their late 2020 gains.
The phenomenon of traders on Reddit driving a short-squeeze in Gamestop shares proved to be a landmark moment for the participation of retail traders in the stock market. Other stocks like AMC as well as cryptocurrencies were driven higher by memes in message boards as strangers teamed up to take on the hedge funds. Most of the names that were driven higher eventually dropped back lower and many traders will have felt the losses and learned hard lessons.
The Federal Reserve managed to keep its pace of asset purchases pretty much unchanged for the entire year until the last quarter when it began the much anticipated tapering of QE. Having this huge regular buyer in the bond market kept yields artificially low, making stocks more attractive and helping stock markets keep trending higher.
The rollout of vaccines at the start of 2021 encouraged a move out of growth and tech stocks that had performed well in 2020 and into value and cyclical stocks like energy and banks. New variants of covid and delays in the EU in starting the vaccination campaign stalled the rotation at times but at year-end, cyclical stocks have handily outperformed growth except some clear exceptions among the FAAMG stocks like Apple and Microsoft.
The cancellation of the ANT Financial IPO, the spin-off of Jack Ma’s Alibaba, started a wave of new regulation and intervention from Beijing into China’s tech sector. The online private education market was all-but-banned and major players in online gaming like Tencent saw their apps removed from app stores, and the shares have seen massive 50%+ declines.
A huge increase in the global money supply, Supply-chain bottlenecks and a supply-demand imbalance in oil markets triggered a massive jump in inflation across the globe, which remains in place at the end of the year.
Those who tried to pick the top in the stock market will have consistently been stopped out this year. There are always lots of reasons to think a sell-off in the major indices might be coming but that’s why they say a bull market is ‘climbing the wall of worry’.
After a torrid year in 2020, the same old questions were being raised about the future of the US dollar as the world’s reserve currency. But it bounced right back in 2021. One day the dollar will be replaced – maybe by Bitcoin or a CBDC – but trading as if you know when normally doesn’t work out.
There were a number of mad bubbles in 2021 from GameStop to Dogecoin to the ARK Innovation ETF – and most of them are sitting on big losses and are well away from former highs. Calling the top is hard but recognising a bubble when it’s happening should be easier.
When there is an exception to this rule like Apple, it tends to be one of the best investments. But most stocks will be in fashion one year but as their valuations rise, investors will rotate to something cheaper by selling the expensive things they own. That was the story of Zoom, Peloton etc in 2021.
With the reflation trade in place at the start of the year, there were some big calls to buy Europe vs the US. At the time of writing, the Euro STOXX 600 was up 20.7% year-to-date, while the S&P 500 is up 24.5%. It seems when Europe does well, the US does even better.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD has been testing a long term support zone near 1.12 as well as the 61.8% Fibonacci retracement of the 2020 rally. The pair has been downtrending most of this year after forming a double top around 1.23. Next major long term support is around 1.08.
GBP/USD broke its uptrend line in May and has since made lower highs and lower lows in keeping with a downtrend. The 200-week SMA is currently support but the move under 1.34 increases the chance of a steeper move lower to 1.27.
USD/JPY broke above a 4-year old downtrend line in March before going on to break to 5-year highs by November. The price is consolidating near 114 and the long term resistance. A continuation of the uptrend could target 119.
AUD/USD broke below its uptrend line in May before quickly dropping to 0.71. A corrective move higher saw it rebound to 0.755 before it rolled over to make a 1-year low in November. A weekly bullish engulfing candlestick suggests 0.70 could hold but the trend is still lower.
USD/CAD remains inside a 7-year wide trading range between 1.20 and 1.45. The rebound from below 1.20 is correcting the sharp downtrend and faces resistance at 1.30 then potentially 1.37.
XAU/USD continues to trade underneath a downtrend line connecting the highs since August 2020. 1750 and then 1680 were major support. A drop under 1680 could see a drop all the way back to 1450, while a break above the trendline could signal a new record high.
BRENT is testing the rising trendline that has supported the uptrend since March 2020. The latest correction began after a test of the 2018 peak at 86. Another leg lower could carry the price back down to 56.
US500 is stalling underneath 4700 and above the rising trendline that has supported the uptrend since May 2020. A break of the rising trendline could see the price again test 4250 but that level has been tested twice already. If it breaks, a new bear market target of 3600 is possible.
Thank you very much for reading – and have a very happy holiday !
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