Global Trend Report 01/2020
New month, new year, new decade. In this short, technical trend analysis, we take a look at various asset classes and their trends at the beginning of 2020. The trend assessment below is based on a simple, binary metric:
up trend = price > 40 week average (SMA 40)
down trend = price < SMA 40
In a trend following strategy – which might be useful for achieving buy and hold-like returns with lower volatility – you would want to buy, sell or sell short upon trend changes. Also, trend changes can be used for re-balancing existing investment portfolios in order to maximize risk-adjusted returns. The market timing status below is characterized by another simple metric:
buy = recent 4-week-Exponential Moving Average (EMA 4) cross above SMA 40 (within the last 2 weeks)
sell = recent EMA 4 cross below SMA 40 (within the last 2 weeks)
hold = wait for next buy or sell signal
Global stock markets
Basically all major stock markets are in long-term uptrends. Developed markets like the US and Europe are far above their 40 week/200 day moving averages. Recent trend buy signals according to the definition above were generated on the Shanghai Composite and Hong Kong indexes.
|S&P 500 – SPX||up||hold|
|Nasdaq100 – NDX||up||hold|
|Russell 2000 – RUT||up||hold|
|Germany – DAX||up||hold|
|UK – FTSE100||up||hold|
|Europe – Eurostoxx50 – ESTX50||up||hold|
|Japan – Nikkei||up||hold|
|China – Shanghai Composite||up||buy|
|HK – Hang Seng||up||buy|
Stock market to watch: Hong Kong
The Hang Seng Index started a new uptrend in December with a new buy signal generated on Dec 23, 2019 (EMA 4 > SMA 200). The trend signals in 2019 were not sustainable, let’s see if 2020 allows for a new longer-term uptrend.
Global bond markets
Global fixed income markets are mostly in existing uptrends as well but there are some markets which are quite close to their 40 week moving averages, so there could be some sell signals not too far ahead.
|US 10 year GOVT bonds (IEF)||up||hold|
|Vanguard Eurozone ETF (VETY)||up||hold|
|US Treasury bonds ETF (VUTY)||up||hold|
|BIV Vanguard Intermediate Term bonds ETF (BIV)||up||hold|
|Vanguard Emerging Markets bonds ETF (VDET)||up||hold|
|Vanguard Extended Duration bonds ETF (EDV)||up||hold|
|Vanguard Euro Corporate bonds (VECP)||up||hold|
|ishares Inflation Link Govt Bond (IBC1)||up||hold|
Bond ETF to watch: EDV
EDV tracks and holds long-term US government bonds with a duration from 20 to 30 years. The 40 week uptrend was tested recently for the first time since February 2019 – so far the uptrend remains intact.
Commodities & Metals
|Invesco DB Commodities Index (DBC)||up||hold|
Metal to watch: Copper
Copper initiated a new uptrend in December 2019 accompanied by a trend buy signal. Price also broke above its downtrendline from 2018 which should act as first line of support, the 40 week moving average is the second defense right below.
Forex & Crypto Markets
The US-Dollar (USD) showed remarkable relative strength throughout 2019. At least in the short term there is some weakness in USD heading into 2020 as major currencies like the British Pound, the Canadian and the Australian Dollar and the Euro, are all on new or recent uptrends against the Dollar.
Currency pairs to watch: EURUSD and AUDUSD
EURUSD is on the verge of breaking its longer-term downtrend, which has been active since April 2018. A weekly close above 1.1150 on January 10 would very likely generate a new trend buy signal (EMA 4 > SMA 40).
The Australian Dollar broke above its 40 week average at the end of December 2019 with price heading back down again. EMA 4 and SMA 40 are basically at the same level. Price would have to close above 0.69 this week for a confirmed buy signal.
Real Estate (REITs)
European REITs are in a very strong uptrend with price far above the 40 week moving average. Some reversion to the mean could be expected from this level.
|US – VNQ||up||hold|
|Europe – XDER||up||hold|
REIT to watch: VNQ
VNQ has been in a strong uptrend for about a year and has recently tested the 40 week moving average for the first time. A new downtrend and a potential trend sell signal are not far away and could be triggered upon a weekly close below 90.