In 2019, traders and investors from all over the world experienced one of the most interesting years in the financial markets. Trade tensions between the United States and China, ongoing troubles with Brexit and a major shift in global central bank policy were just some events that took centre stage.
It is these events which are setting up 2020 to be another very interesting year for the financial markets. In today's article, we take a look at some of the top trading ideas for the new year covering a wide variety of different asset classes.
Remember that trading is not just about the idea. Every trade could either win or lose so it is also important to focus on trade execution and risk management. You can learn more in the 'How to be a successful trader in 2020' article.
Trade Idea #1: Could the gold-rush continue in 2020?
Did you know that since 2010, central banks turned from being net sellers of gold to net buyers? In fact, the World Gold Council (WGC) has shown that the demand for gold in the first quarter of 2018 was up 42% year on year. This helped fuel a gold-rush in 2019, helping the price of the yellow metal to close more than 18% higher for the year.
Could the gold-rush continue in 2020?
There are many fundamental reasons to suggest that gold prices could push higher this year, such as the escalating tensions from the ongoing trade dispute between the US and China, the uncertainty surrounding the 2020 US presidential election and continued worries about economic growth in a time central banks have run out of new measures to stimulate global growth.
The positioning of the market also provides a more positive picture for gold this year. According to the World Gold Council, the third quarter of 2019 saw the largest inflow in gold ETFs (Exchange Traded Funds), since the beginning of 2016. Of course, the fundamental landscape could change over the course of the year. However, the price chart of gold is showing some very interesting characteristics.
Source: Admiral Markets MetaTrader 5, Gold, Monthly - Data range: from 1 January 1992 to 2 January 2020, accessed on 2 January 2020 at 1:04 pm GMT. Please note: Past performance is not a reliable indicator of future results.
In this monthly chart of gold's historical price, it is clear to see the long-term bull run from 2000 to 2010. From 2010 to around 2015, the price of gold lost nearly half of its value gained from its previous ten-year bull run. Since 2015, the price of gold has consolidated, forming a price wedge, as shown by the two black support and resistance lines on the chart.
In late 2019, the price of gold broke to the upside of this wedge formation. This means that buyers are firmly in control at the beginning of 2020. As the price of gold is already trending higher, traders may opt to view the lower timeframes such as the daily or four-hour chart to trade trend continuation strategies. How will you be trading it this year?
Trade Idea #2: Is the Hong Kong stock market too cheap to ignore?
Did you know that the Hang Seng 50 stock market index opened 2020 around 15% below its all-time high price level of around HKD 33,510, made in January 2018? For many investors this represents a very interesting proposition if the Hong Kong stock market - once dubbed the 'gateway to Asia' - can claw its way back to its all-time high price level.
While the threat of protests still continue there were some positive developments late in 2019. This included the decision by Alibaba to list its shares on the Hong Kong Stock Exchange which helped raise $11 billion in equity for the company. For a city whose stock market is worth 12 times its gross domestic product, a happy financial hub is very important.
Source: Admiral Markets MetaTrader 5, HSI50, Weekly - Data range: from 11 September 2016 to 2 January 2020, accessed on 2 January 2020 at 2:04 pm GMT. Please note: Past performance is not a reliable indicator of future results.
In the weekly chart above of the Hang Seng 50 index's historical price, the major highs and lows of price have formed a consolidation pattern, as shown by the two diagonal black support and resistance lines. Could 2020 be the year in which price breaks out of the consolidation pattern and marches back towards its all-time high price level? It's certainly one for the watchlist!
Trade Idea #3: Will the DAX 30 continue its multi-year rally higher or will it run out of steam?
In 2018, Germany's DAX 30 stock market index snapped a six-year winning streak and entered into a bear market, losing nearly 25% of its value. However, 2019 was a big year for the index as it closed the year nearly 27% higher. As the index entered 2020 it was still trading just shy of the all-time high price level of around EUR 13,596 made in January 2018.
Even though 2019 was a huge year for the German stock market, many analysts are still bullish on the market going into 2020. As Emmanuel Cau, head of European equity strategy for investment bank Barclays, wrote in a recent strategy report: "We find current European equity valuations attractive compared to the US."
Source: Admiral Markets MetaTrader 5, DAX30, Monthly - Data range: from 1 June 2005 to 2 January 2020, accessed on 2 January 2020 at 3:31 pm GMT. Please note: Past performance is not a reliable indicator of future results.
In the monthly price chart of the DAX 30 index above, it's clear to see the long-term trend higher. What many traders and investors will find interesting is that price has been trading in between the two parallel support and resistance lines highlighted in black. This chart pattern is known as a trend channel.
Using this trend channel, there is a strong possibility that price may well continue up until the top line of the trend channel has been reached. While current momentum is bullish, the price will have to break to a new all-time high price level before it can reach the top of the trend channel. Will 2020 prove to be the year this happens?
Trade Idea #4: Will the 2020 US Presidential election finally get the US dollar moving again?
Forex market volatility has been trading at historic lows for much of 2019. In fact, two foreign exchange volatility indexes from JP Morgan and Deutsche Bank show that Forex volatility is sitting at its lowest level in five years.
According to data compiled by Bloomberg, each time the JP Morgan Global FX Volatility Index has been trading close to the levels reached in 2019, the US dollar (specifically the US dollar index futures contract), has exploded around 10% over the next six months. However, this is simply a measure of volatility - not direction!
To help identify the direction of the US dollar it's important to keep an eye on any event triggers throughout the year. One event is the uncertainty surrounding the US Presidential election in November and the escalation of war between the US and Iran.
Source: Admiral Markets MetaTrader 5, USDX, Monthly - Data range: from 1 January 2010 to 6 January 2020, accessed on 6 January 2020 at 11:10 am GMT. Please note: Past performance is not a reliable indicator of future results.
In the above monthly chart of the US dollar index, recent price action has broken below a major trend line as shown in the highlighted yellow box. While buyers have historically stepped into the market at this angle of price, there doesn't seem to be any buyers who have stepped in at the beginning of 2020.
If sellers take control of the market, then the price could fall to the next major horizontal support line at $88.92, shown by the horizontal black line on the chart. From the break of the trend line, this represents a near 8% drop in price.
Some traders will attempt to 'short' the US dollar index and others will use it as a directional bias to trade other US dollar related currencies. For example, if the US dollar falls traders may opt to identify long positions on EURUSD or GBPUSD. As these currency pairs rise in price, the US dollar weakens while the first currency in the pairing strengthens.
Trade Idea #5: Is Bank of America the stock to watch for 2020 after a big thumbs up from Warren Buffett?
In 2019, legendary investor Warren Buffett added another $1.1 billion to his position in Bank of America. The fact it's Warren Buffett may be enough of a reason for some to also look for long positions in the stock. However, it's always good to do your own research as YOU have to deal with the consequences of the trade winning or losing. So what is happening at Bank of America right now?
Newly appointed CEO Brian Moynihan has been quietly turning the business around since the bank lost $134 billion on bad loans and spent a whopping $64 billion on litigation during the financial crisis. Moynihan has embarked on an aggressive cost-cutting campaign taking the company's 2009 headcount of 320,000 to just 100,000 in 2019. He has also focused on getting the bank back to traditional services like loans and credit cards to serve the bank's - more than - 66 million customers.
Source: Admiral Markets MetaTrader 5, BAC, Monthly - Data range: from 1 November 2003 to 6 January 2020, accessed on 6 January 2020 at 11:27 am GMT. Please note: Past performance is not a reliable indicator of future results.
In the above monthly chart of Bank of America's share price, it's clear to see the recent trend higher since 2011. However, the share price is still some way off its all-time high price level of around $55 made in November 2006. For many investors that already presents significant upside - provided the bank can continue to grow its business. How will you be trading it?
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