Market Commentary for November 2019

"Bullish behaviour... "

By Alan Hull

This commentary is in part or entirely created using extracts and comments from my weekly Blue Chip Report. For more information about the Blue Chip Report, including subscription details and a recent sample report, go to Blue Chip Report

October was a far scarier month than most people realize. Trump's antics with the U.S. China trade talks nearly pushed us into the abyss. In the lead up to them he even speculated on whether or not he even wanted to make a deal. Luckily for all of us, this was pre-negotiation posturing. But rest assured that a serious break down between the two largest economies in the world will undoubtedly cause financial markets to shrink. Fact...if you shrink global trade & commerce then you shrink the size of the financial markets.

Anyway the markets responded by consolidating and this is where investors were painfully unaware of how close we got to the cliff edge. Most investors only become aware of grave danger when markets fall rapidly in response to an event or events. But when they consolidate they are getting ready to break out either way and this is just as dangerous because when they do break out, it's so fast and dramatic you won't have time to react.

Let me give you an analogy. You're driving down the road and you are approaching a set of lights that have stopped working and are flashing amber in both directions. Of course you slow down, give way to the right and progress through the intersection with extreme care. October was flashing amber lights for financial markets but most investors weren't aware of it and drove through the intersection with little concern. I personally sold down my holdings by taking profit and made the same recommendation to others.

The good news is that Trump appears to have gone into election mode now and is laying off the tweets. A strong indication of this is that he didn't get stuck into Jerome Powell (the Chair of the U.S. Federal Reserve) after he only lowered interest rates by the minimum of 25 basis points. Based on previous form this would have sent Trump into a rage...via his Twitter account.

So Trump's up-until-now near fatalistic approach to trade and foreign relations appears to be tempered due to the proximity of his re-election next year. And the markets seem to be responding accordingly as we can now see on the monthly chart of the SP-500 index that an upside break is looking very likely. This is clear bullish behaviour and I have responded by doing a bit of buying...

Slow down for any amber lights and then speed up again as you clear the intersection. This is risk management which most investors don't appreciate because they constantly get away with driving through amber lights without slowing down. But we're on the other side now and with Trump in election mode and Brexit on the backburner again, I truly hope we are on the eve of a Christmas rally.