A quick review of the most profitable trade setups in the previous year could serve as an excellent guide of what to look out for in the current year. Here’s a rundown of the trades that would’ve made millions, be in the currency, commodity, cryptocurrency or equity markets.
CHF pairs on surprise SNB announcement
Perhaps one of the biggest surprise market moves seen in early 2015 was the sharp rally in the Swiss franc following the decision of the Swiss National Bank to scrap the peg on EURCHF and lower deposit rates deeper into negative territory. If you recall, the Swiss central bank imposed this peg to prevent the franc from appreciating too much against the euro and its other forex counterparts, thereby allowing the Swiss economy to retain a competitive advantage in international trade.
However, it became too costly for the SNB to maintain this peg and their announcement to let the currency appreciate freely triggered thousands of pips in movement for franc pairs, which hit plenty of stops and even wiped out several trading accounts in the process. Of course for the lucky ones with sell stop orders on USDCHF, EURCHF, GBPCHF or other franc pairs, this would’ve made more than 2,000 pips overnight and might’ve been enough to make bank for the entire year.
Shorting energy stocks
Another major market theme that emerged early in the year was the selloff in crude oil, which was already taking place around the third quarter of 2014. This prolonged decline was sparked by increasing supply levels, as US fracking operations contributed to its own stockpiles and lessened the need to buy from Middle Eastern OPEC nations such as Saudi Arabia.
Saudi Arabia wasn’t pleased with this situation so it decided to ramp up its own production, thereby driving prices significantly lower in hopes of edging the US oil producers out of the market. This, combined with a brewing slowdown in China and emerging economies, contributed to further downward pressure on prices and much weaker earnings from energy companies, which saw a steady decline in their share prices throughout the year.
Buying Chinese ETFs during the first half of the year
The Chinese market was still benefitting from central bank stimulus and government efforts to revive the economy, paving the way for a stellar rise throughout the first half of the year. Around that time, two of the largest Chinese ETFs by assets, iShares China Large Cap ETF and SPDR S&P China ETF, chalked up more than 20% in gains before turning lower after halftime. Meanwhile, the more aggressive small-cap stocks enjoyed stronger rallies, with the iShares MSCI Small Cap ETF, which holds some Hong Kong equities also, up by nearly 50%.
Short AUD on Chinese growth concerns
Around July, the Chinese stock bubble reportedly burst, triggering a massive bloodbath in the Asian equity markets. This was followed by desperate attempts by Chinese authorities to prop up the markets, which ironically spread more panic in the markets and caused a huge slump in investor and consumer confidence.
This downbeat sentiment caused weaker investments and production among companies, as consumers also refrained from spending, and carried over to weaker demand for commodities and raw materials from Australia, China’s number one trade partner. Because of that, the Australian dollar depreciated rapidly against its peers, particularly the US dollar and the Japanese yen. AUDUSD tumbled from the .9400 levels to .7500 by the end of the year while AUDJPY fell from 96.00 to 82.00.
Long FANG: Facebook, Amazon, Netflix, Google
Interestingly enough, even with weaker investor sentiment for the latter half of the year, FANG stocks namely Facebook, Amazon, Netflix and Google managed to sustain their climb. Facebook rose from the $80/share levels to peak at $110/share, thanks to the company’s strong fundamentals and aggressive growth plans.
Amazon stock nearly tripled from $280 to $680 while Google shares, then renamed Alphabet, rallied from below $500 at the start of the year to come within a few points shy of $800. Netflix posted the strongest growth among these four stocks, with prices advancing from $45/share early on to trade near $130.
Long Bitcoin to $500
In terms of alternative currencies, bitcoin also enjoyed quite a stellar rally, lifted by continued developments among startups in the industry and increased mainstream acceptance. Although the cryptocurrency did encounter some road bumps from tighter legislation in financial cities like New York, it was still able to benefit from investors moving their funds away from Chinese markets while still seeking higher returns.
Right around the time of the Chinese stock market slump, bitcoin price moved all the way up from its $200 lows to $500, boosted partly by a Russian Ponzi scheme that artificially led to a spike higher.
Long USD on Fed liftoff expectations
Last but certainly not least is perhaps the surest bet of them all, which was to buy the dollar on increasing expectations of a Fed liftoff. Forex traders had been expecting the Fed to hike interest rates mid-year but these hopes were dashed by the global stock market rout. Next, traders hoped for a rate hike in September but Fed officials decided to hold out longer since inflationary pressures were weakening then.
By December, the Fed was finally ready to hike interest rates, thereby boosting borrowing costs and returns in US-denominated assets. The dollar’s rallies were also supported by its safe-haven appeal when the rest of the global economy appeared to be on the verge of another breakdown.
Among the best currencies to short against the dollar then were the Aussie, Loonie, and Kiwi since these were the worst hit by the fall in commodity prices and the downturn in risk appetite, particularly during the second half of the year.
All in all, the best setups across the different financial markets for 2015 seem to be a mix of short-term plays, with the occasional “black swan” event coming from the SNB, and long-term positions such as banking on dollar strength or the strong fundamentals of US technology companies.
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