Assessing Q1 2021

April 7, 2021 10:50 AM
This article was first published to the Topstep Blog on April 1, 2021
Assessing Q1 2021

Assessing Q1 2021

Many different types of traders read these posts, and many of you are at different stages of your trading careers. Some are in the beginning stages, while others are very experienced. No matter where you are in your progress, extended weekends, especially at the end of a month and end of the quarter, are a great time to look back at your recent results.

To those who had better than expected quarters, bravo to you! Remember not to get lazy. The best steps you can take now are to analyze when things went right and how you might use these variables to continue the same kind of success in subsequent quarters. Additionally, following significant achievements, it’s also wise to analyze any particular vulnerability or areas of weakness. An old adage in the markets attests that the big losers often follow the large gainers. 

If you didn’t miss, or even exceeded, your quota for the quarter, then a toast and congratulations to you! Consistency is a primary factor to long-term trading success. In baseball, hitters with a high on-base percentage often have extended careers making a living on singles, doubles, and walks. Meanwhile, home run hitters have a more elaborate peak but often decline much quicker. In trading, I’ll take consistent singles over occasional home runs. 

To traders who missed their expectations for the first quarter, remember that it’s not how you begin the year, but how you finish it. There are opportunities remaining in the upcoming months, so with sound risk management rules and homework, there’s time to overcome some setbacks. One key is to pace yourself and not try to make up losses in a single swing. Hitting singles and doubles are the preferred alternative to repetitive strikeouts. 

Assessing Q1 2021

This year opened with political uncertainty in the U.S. that was only compounded by additional events at the U.S. Capitol. Thankfully, some of the tension has subsided. Furthermore, there was a relevant concern as to how the financial markets would respond to the potential of a Democratic sweep, now having the White House, the Senate, and House of Representatives. While there’s been some volatility, the markets have adapted to changes with the same consistency that we’ve come to expect.

Furthermore, around the Christmas holiday, there was a seasonal spike in Covid-19 cases and deaths worldwide. However, in many parts of the world, major issues have subsided, coinciding with widespread vaccination and greater “herd immunity.” 

It should be noted that projections remain conflicted. While some authorities see a continued decline, others are now warning of a resurgence in the U.S. Meanwhile, in a few parts of the world, cases are at their highest levels.

The point is, the Covid-19 pandemic seems to be largely eradicated from the radar of many financial markets as expectations have continued to adapt. 

Equity Markets

If you trade the equity index futures in the U.S. (ES, YM, NQ, RTY), you’ve likely noticed an exciting development. Typically the spread or differential between these products remains relatively tight, as they tend to pace well with each other.

However, the S&P 500 and DJIA futures have been firm this year and, even now, are very close to all-time high prints. The Russell 2000, which had been the best performer of 2021, has been weak since March 15th, when the end-of-quarter rebalancing began. Meanwhile, the Nasdaq has been underperforming for 7 weeks now. 

I expect this differentiation to continue for the next several weeks, giving spread traders an excellent profit opportunity. Because these markets are fluid, and because traders have different styles and timeframes, it’s impossible to provide further recommendations except to be aware of the trend. 

For example, as long as the NQ is weakest when you have a short bias, you might consider taking the short in the Nasdaq. However, as this trend continues, the ES would be the better product to position for longs. That said, this trend will reverse at some point, and the NQ will begin to outperform the S&P 500 to the upside. 

At that time, you don’t want to be caught in the wrong direction of this spread, as I think that the NQ will have a substantial rally, leading all equity markets. Consider that the Nasdaq seasonality is to bottom out in mid-March and then rally, as volatility also tends to decline from the same time frame into May. 

U.S. Dollar and Gold

If you trade currencies, you know that the U.S. dollar began a massive decline almost a year ago and has since begun to lift in recent weeks. The dollar strength’s primary source has been in the USD/JPY pair, one that has such a strong trend currently that it becomes difficult to fade. 

Meanwhile, gold futures have come off their all-time highs in August, and the decline has been assisted by recent dollar strength. Perhaps you’re a gold bull or you’re looking to short the U.S. dollar, thinking the current rally to be a dead cat bounce. Either way, gold is becoming an attractive buy. From the August 2018 low of $1167 to the August 2020 high of $2089, it has a 50% retracement in the area of $1628.00, just a little lower from its current levels. From the current $1700 down to $1600, I believe it’s a significant support marker for this product. 

The gold and the U.S. dollar seasonals also favor such a move, given that the dollar’s high is usually found in mid-March and then sells heavily in April. Meanwhile, gold tends to get a lift in April. 

Crude Oil

Crude, which benefited from the dollar weakness, is now seeing a slight pullback given the dollar’s recent bounce. I believe that buying weakness in oil is another suitable way of fading recent dollar strength. While the upside is likely limited from the current $60.50 price, anywhere from $55.00 to $50.00 is possibly going to be excellent support. Crude oil’s seasonality is strong from February through June. 

These are just a few ideas that I believe will make good opportunities for swing and day trading over the weeks to come. Best wishes and trade well in the second quarter!


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Topstep is an innovative, Chicago-based fintech company committed to delivering high-value offerings to retail traders. Topstep provides an opportunity for them to learn to manage risk, gain confidence and trade without risking personal capital.