2016: Year of Volatility | Stocks, Forex Trading Strategies
It doesn't take a genius to notice we had an odd start to the year across most financial instruments including forex and stocks. But it certainly could take a genius to figure out how to invest in this new fragile market with profit.
From an Invest Diva Diamond point of view, so far the fundamentals have pointed to a positive direction (i.e. Lower unemployment rates, better than expected tech company earnings, etc.). While technical analysis has pointed to a different direction (i.e. US dollar along with many stocks break below key support levels). Thus,the market sentiment has been all over the place with no clear direction.
On the one hand, Central Bank objectives from developed countries will diverge as they set the path of interest rates that correspond to their domestic conditions. On the other hand, financial markets will impose a limit on the extent to which interest rates can differ across countries.
According to MIT researchers, the big losers will be emerging markets—especially those countries that rely on foreign capital for their growth strategies.
With this, as far as long-term stocks investing goes, this actually could be a good thing: Similar to the strategies I have been Tweeting, you could spread out limit orders on important support levels and slowly add on to your portfolio as the prices drop further.
But long term investing in forex has become rather challenging as the increase in volatility has made the forex dance floor more suitable for short term trading... Which obviously is riskier than the former.
Here are my current strategies for stocks and currencies
1- Stocks Views
When it comes to tech companies with economy's enormous interest in rapid innovation, it is important to remember that many companies are learning that while innovation can expand their product line, that expansion won't necessarily improve performance. Greater product variety is associated with higher levels of customer and employee difficulties, and those difficulties undermine performance. Companies that want innovation to create value will focus their attention on linkages among products. In 2016, we'll see more cross selling, bundling, and solution provisioning, which all work to make new products valuable and mitigate the negative impacts of increased complexity.
With this, here are some of my picks and entry orders to further build my portfolio:
- Alphabet Inc. (Google): GOOG
The fundamentals for the company is pointing all to the north (not Kim Kardashian West's child, but the north of its stock price chart).
Google's parent company, Alphabet Inc. researchers claimed a major artificial-intelligence breakthrough last week, and we are expecting more innovation popping out of the giant in the coming years. They are also researching big time on autonomous cars, robotics (practically bought every robotics company out there including Boston Dynamics), aerospace projects, data analytics and of course, machine and deep learning.
However, Wall Street investors don't really seem to care about all these cool stuff, and have been pricing Google's market shares based on fear and their peers' sentiment. Therefore we could see further drops in the shares towards 2014 resistance level at 600.
If you have the investing capital, you can go slow and buy as it drops.
- Apple: AAPL
The years when iPhone S comes out are generally not the best performing ones for Apple stocks. Add that to the current negative market sentiment and you could see why the shares has been tanking. At least this one kinda makes sense, eh?
On the upside, we are getting the new iPhone and other products such as new Apple watch this year which could boost the shares up. Apple is also expanding its research on autonomous cars and TV. There are rumors that Apple has recently become interested in forex. In other gossip, Apple is also thinking of buying Tesla out.
Technically speaking, AAPL prices have so far broken below most Fibonacci retracement levels and currently testing the 23% level at around 95. Next stop could be 90.
- Advanced Micro Devices, Inc: AMD
Virtual reality (VR) is a revolution in how we interact with technology and media such as computer games, videos, YouTube, etc. And this year will be the first year that we will have consumer space VR products.
The problem is that even in the consumer space, only 1% of the personal computers out there today can actually use and run the VR headsets, which means in the future more consumers could upgrade to higher quality computers in order to be able to use the VR technology. Which in turn could boost any company that is in the chip manufacturing, CPU, and VR business. That includes companies like Qcom, NVDA, AAPL, Facebook and AMD.
Focusing on AMD today, they used to be one of the strongest in the CPU business, even more powerful than Intel at some point, but they couldn't keep it together. However, they have recently rebuilt their leadership team and many engineers and computer geeks alike have high expectations about their next generation CPU and GPUs.
With that, adding AMD stocks currently priced under a dollar doesn't seem like such a bad idea does it?
2- Forex Views
In times of volatility, most currency investors turn into the so called "safe havens" which are basically the next best thing when things go south in the US. But what is really going on with Ms. USA? Here are some thoughts:
- Ms. USA (US dollar, USD)
Although we had the lowest jobless rate since November 2007 (I was still in Japan back then!!) the market participants decided to focus more on the lower than expected Non-Farm Employment change last Friday. Under normal conditions, this type of mixed signal would confuse the hell out of Ms. USA, but this time, she went straight down.
Why? I've got two words for you: Market Sentiment.
It doesn't help that Fed officials have let out the doves out one after another in their recent testimonies.
Up next in Fed head Janet Yellen, who is not necessarily known as a a hawk, so we could expect her to balance confidence with caution on her Wednesday testimony in front of lawmakers in Washington. Any negative signal on March interest rates could put Ms. USA in deeper trouble.
Could she decide to rescue the US dollar by showing strong confidence in the US economy though?
- Mr. Yen (Japanese Yen, JPY)
So much for Bank of Japan (BOJ)'s negative interest rate policy! They must be disappointed, given that just two weeks after it announced negative rates, Ms. Yen has risen massively against all his major forex counterparts. Mr. Yen is a perfect example of a safe haven currency, and as we saw in the crash of 2008, he only gets stronger on global economy stress. As long as global stocks remain under pressure, we could expect the yen to gain.
- Mr. Aussie (Australian Dollar, AUD)
Mr. Aussie is the opposite of Mr. Yen, and freaks the hell out on global uncertainties. Therefore, together with his buddy Mr. Kiwi (New Zealand Dollar, NZD) he's been conquering the lows especially as they dance against the strong Japanese Yen and Swiss Franc, CHF.
3- Forex Technicals
As seen in the chart lower on this page and my update last week, the AUD/JPY pair has broken below a long-term upward channel as well as the Ichimoku cloud in the past couple of months. If the current market sentiment continues,we could expect the pair to dance all the way towards 50% Fibonacci at 79.
USD/JPY is a whole nother heart breaker, and has broken below the very strong 116 level which had not been broken since November 2014. The next stop is 50% Fibonacci at 113.50, unless Ms. Yellen comes to the rescue.
USD/CHF has confirmed a Double Top chart pattern and tested below the neckline and Ichimoku cloud. Next bearish stop is at 0.9550. Check out my video education course for more details on technical analysis so you can come up with your own strategy. Here are some points to consider when it comes to this pair*.
|Support Levels||Turning Point||Resistance Levels|
Especially at times of volatility, it is very important to consider all 8 steps to choose the best currency pair to trade.
In any case, set your stop loss and profit targets a little loose from the levels I have mentioned to avoid getting kicked out of your trading position prematurely.
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*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.