Trader Insights

Markets That Matter – 2022 December – Newsletter

A year dominated by central bank rhetoric, recession talk, soft or hard landings, ongoing war in Ukraine, talks of a global nuclear war, an energy crisis and all capped off with a (predictable) large-scale crypto fraud (as the SEC accuses Sam Bankman-Fried of at the time of writing). It’s fair to say it’s been eventful.

Let’s wrap up the year, discuss the current state of play, and also look ahead to what we can expect in 2023.

Trend lines – are they any good?

Technical analysis is very popular among day traders. Ask another trader and they may use different indicators to you or may see support and resistance at different levels to you. Critics argue that doesn’t make sense, as it’s far too subjective. 

One method of analysis is using trend lines, which in general, should be the same when viewed by everyone. Some folk will argue that trend lines are useless (hindsight bias is what it may be referred to) and market solely move in line with fundamentals.

However, over the course of the year, there have been some examples of trend lines playing out, almost to perfection, on two of the largest markets (by volume traded) there are. 

Let’s take a look:

US500 / SPX

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From the highs of the year to the most recent bounce following last week’s central bank bonanza’, the SPX has played out almost perfectly with its descending trend line. The most recent rejection almost felt ‘too easy’. 

It’s not allowed to be that simple, is it? Assuming that majority bought into it hoping for a Santa rally. How likely is it that everyone who sells into it will be when it breaks out higher? Don’t forget, markets move when you least expect it.


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As you can see, throughout the year, almost every test of the trend line was rejected down with lower high after lower high printed. 

Only in the past month or so have we seen an eventual break of that trend, but selling at the trend line would have been a profitable strategy on 7 out of 8 occasions.

What’s the moral of the story? Not only watch out for trend lines in 2023 but whatever you see in the market, can be built into a system – don’t let someone else (or even yourself) tell you it’s rubbish until it’s been built and tested. Only then you can agree with them…

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