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My Worst Charts of 2022
Because we don't always get it right!
Last week I shared with you some of my Best Charts of 2022... i.e. the charts and calls that worked really well in either building the picture or presenting a specific idea.
Of course, it wouldn’t be complete without a look at some of the charts that *didn’t* work (or shall we say the ones that worked “less well!”).
As noted in my previous article, I think it's good to review what worked well -- I believe in learning from success. But naturally it's also good to review what didn't work, to see if we can improve processes, thinking, and to make sure we stay humble.
But also it's important to keep the gaze looking forward: some of the themes and ideas listed below might not have worked this year, but they may well become all the more relevant in the months and years ahead.
Hope you find these interesting and informative...
These charts were featured in my just-released 2022 End of Year Special Report - do check it out when you get a chance (free download as a holiday treat!).
n.b. I have updated the charts with the latest data (in a few cases the original idea has actually come entirely full-circle). Also on formatting: the italic text is a quote from the report in which the chart originally appeared.
n.b. be sure to check out our [FREE] Chart Of The Week series.
1. US Dollar: I started the year advocating a bearish US dollar view, albeit I quickly abandoned the bear view about a month later [25 Feb] as the evidence became clear that I had a wrong view.
“No cause to change the medium-term bearish bias on the US dollar at this stage. Still running with the prolonged/ranging/volatile transition to bear market (but sorry, no collapse prediction!). Looking at longer-term cycles, vanishing yield support, slight over-valuation, flip in sentiment…” (15 Jan 2022)
2. EMFX: Similarly, given cheap valuations and initially promising technicals (the original chart line has been left in the chart), I started out bullish on EMFX, but also later abandoned that view (before it fell further!).
"EMFX appears to be finding some stability in the new year, with my equal-weighted 25-currency (vs USD) index rallying off the lows and putting in a bullish divergence signal on the 50dma breadth chart. Also of note is the 200-day moving average breadth indicator is turning up from oversold levels – all up indicating perhaps at least a pause to the weakening trend seen last year.” (21 Jan 2022)
3. EM Debt: This one was a bit different, I would categorize this one as being too early. In hindsight it needed a bigger valuation cushion to protect against the risks facing EM bonds. But as things stand, the outlook for EM bonds is very compelling, with valuations now *much* cheaper. Another upside is with EM yields now much higher, you get paid a decent stipend while you wait for the value aspect to play through. But as always, a caution about getting too excited too early, because too early is just another way of getting it wrong short-term.
“Another case of emerging value in emerging markets is in EM sovereign bonds: EM 10-year government bonds are starting to look cheap in absolute (vs nGDP fair value model), and relative terms (vs developed peers – e.g. average 10-year govt bond yield across EM is trading at a 20-year high vs developed market yields).” (15 Jan 2022)
4. Bonds vs Stocks: I began outlining the case for bonds vs stocks given how the evidence was shaping up, and stocks did fall, but bonds fell just as much making the stock/bond ratio go sideways, not down as I expected. Again though, I would be paying close attention to this one headed into next year.
“from a positioning/sentiment standpoint, the ratio of equity vs bond/cash allocations is rolling over from the upper end of the range. While it has been higher before (dot com bubble), this is definitely elevated vs history.” (4 Mar 2022)
5. PBOC Policy: So on this one my call was for the PBOC to do more easing, which it kind of did, but much less than anticipated (to be meaningful for markets). Still an interesting chart to compare/contrast China vs the rest of EM.
“the PBOC has pivoted from its neutral/hawkish stance (they opted for relative forbearance on stimulus during the pandemic – and in hindsight could afford to do so given the extent of stimulus unleashed around the rest of the world!). This week the PBOC followed-up its 5bp cut in December with a 10bp cut to 3.7%. Small moves, yes, but the signalling aspect is critical. …it continues the trend of “China zigging while the rest of the world is zagging” e.g. just as the Fed moves to hike rates, the PBOC is kicking of a rate cut cycle.” (21 Jan 2022)
6. Frontier Markets: Turning bullish on frontier market equities before another (the final?) flush lower. Now they look even better on the valuation front, and remain an overlooked and underappreciated segment of global equities, another one to watch going forward!
“Frontier market equities are starting to look interesting again. Valuation indicators have significantly improved – most metrics have moved back to cheap/bottom of the range. Meanwhile the MSCI Frontier markets index has bounced off support after dropping -26%. The risk/reward balance has definitely improved at this point.” (12 Aug 2022)
So an interesting set of charts and lessons (caution on being too early, caution on being right but not right enough, and caution that external shocks can confound otherwise sound analysis). But also some interesting clues and snippets for the year ahead (and p.s. stay tuned for the 2023 Charts blog coming soon…)
Thanks for reading!
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Head of Research and Founder of Topdown Charts
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