2022 Year In Review

You can read the episode transcript below or watch the video that follows.
If you have any questions, please reach out to us. We look forward to being a continued part of your trading education!

The year just flew by and snap it was gone. One of the things that's really important for us as traders is to go back and review our work, review and see how we did. So, use some of this time today to actually go back and look at what were our top themes for 2022, and how do they play out?

This week is a big week, I'll be spending New Year's getting ready for 2023 doing all my research and getting set up for what I think will be the top markets for next year. Let's look at this year, let's look at 2022. Every month, we publish we call the Reed's Report where Mark Boucher and I put together our top ideas, and then we go through a format where we go back and forth and we share the macro picture, we break down each asset class and we go through asset class by asset class looking at what markets are in play, and what markets are in the sideline, and as part of the Reed's Report, one of the things I do is I come up with my top themes.

So, these were my top themes for 2022, and my top potential themes. These are themes that I thought could be activated that we wanted to keep an eye on. You can see the top themes are short, the short end of the yield curve short the two-year note, the five-year note, I did not have it in here, but we could have the Euro dollars. Short Japanese yen. That was another big theme of mine. That was actually my second favorite theme of the year. Then we have long copper, long corn. We had long cotton, which was my favorite theme of the year, and we had long coffee.

Let's go through and look at these top themes and see how we did. First of all, this is a two-year note. In this chart, these are weekly candles, these are weekly bars, and in our method, what I call The Method, we analyze price through a multiple timeframe network. In this case, we're looking at yearly and quarterly timeframes, which we're analyzing them using weekly bars.

We talk a lot in our workshops about the logic of price bar formation. In the logic of price bar formation, what this says is that there's four inputs to a price bar, we have an open, we have a high, we have a low, we have a close. These four data points are indisputable. Now, with these four data points, we start looking at things like when a high for a bar goes in. Well, then the only way the bar can unfold from that point is to go down. Because the high tick is in. Now we could have bars that are more congestive, and they could go sideways, and they could go back and retest the highs, but the fact is once the high is in, that's it, the bar will go lower. Conversely, if the low is in, then the bar will go higher. This is important because once a yearly high is in, then the remainder of the year must be down. This is overwhelmingly simple. It's almost stupid obvious, but yet very, very few traders ever consider this fact.

If I know a high for the year is in, I have the potential for a big move, and that's exactly what happened here. Highs going first. If the market is going to be lower, the high will going first and the market will move lower, it has to be that way. Market cannot go lower and put the high end last, it's impossible. Here's a good example. We see highs and lows go in a way that is still seems statistically impossible, but it happens all the time. We're going to see these in our top themes.

If we look in the two-year note, I want you to notice the high for the year went in basically on the first day of the year. You can see we had a big down candle. Here's the high market open at 108 13. The high was 108 13 and a quarter and then the market moved down, and it moved down dramatically down so this was the high of the year. Once this was in you could see the yearly direction unfolded down. This was a massive move down. This is on our list because in December, the Federal Reserve actually started to shock the market because they start to accelerate the removal of stimulus. This is something the market was not expecting, and so they started to remove stimulus and started to forecast raising rates and of course that's what they did.

Along with that we had the five-year note. The two-year note and the five-year note are going to be highly correlated, but we can see the same thing. Open at 120 20 and a quarter high for the year was 120 20 and three quarters and a five-year traded down all year. This is another massive move.

Then we had the Japanese yen. The dollar was really strong and 2022 but the Yen was really really weak. The Yen was weak against everything. So, this is dollar yen, and we can see in the dollar yen, market went sideways actually through a big chunk of the first quarter. They put the low in on January 14, and then it took off and it had a massive run up. One of the things we look at is what we call volatility targets. When the market goes too far too fast it hits what we call volatility targets, and the market actually started hitting volatility targets late in the second quarter and in the third quarter, and the market ended up responding and backing off.

We said cotton was our favorite theme, let's look at cotton. Cotton actually gapped on the first day of the year and the opening price was the low print and then you can see cotton took off. It had a pullback took off again and hit this volatility target up in here with a massive exhaust so this is actually a place where in our method we would be looking to take profits and you can see the market responded off out of here selling off coming all the way back down and actually making a new yearly low. Market rallied back up to kind of backfill. We have something we teach called the Six Steps of Market Development which is a predictable way that the market trades and this was what we saw. We saw the Six Steps of Market Development playing out right here and the market made new lows and was hanging down here.

We had copper. Copper was one of our favorites. Copper is an example of one we did not get right. Copper had a strong 2021. It paused late in 2021 and we expected then it to break out and go again in 2022 and that's what it tried to do right. It tried to break out up, but it failed, and then when it failed it came back across and we had really strong volume. The market kind of bounced off of support but then it broke support and it was gone and ended up having a down year. This is one we did not get right.

Then we had corn. Corn put the low in on January 14th, had a really strong rally and pulled all the way back down into where it broke out from, and it rallied up. Corn is what a market for next year is setting up where it could push and go higher, or it could trade in a range all year. We'll have to see, it's at an inflection point. This is one of the things we'll be looking at this week. Corn ended up higher on the year but nothing crazy.

The last one was coffee, and quite honestly, I misread coffee I just did not read it right. We thought coffee had a chance to really run and it took off kind of like cotton did it found resistance and then it's sold off, and it started making new lows. It kind of traded in a range for three quarters of the year but it made new lows, found selling and then broke out hard down. The big thing that I missed is that the value of coffee, we talk about with our traders if I say what kind of trader are you, you'll hear my traders say I'm a value trader. We always trade from a value framework and one of the things I missed was that yearly value, and coffee was way down here at 166. We opened the year way away from value, so the market was overbought, and it was too far from value, sellers started coming in and brought the market all the way back down to yearly value. I would expect coffee to trade in a range next year, between where we're at now, and up into 208, maybe down as low as 133 to 208. But I see coffee having a sideways year, I misread this one.

This sort of thing is what I'll be doing this week, getting ready for next year, and then that'll give me a roadmap for how to view markets for 2023. This is really useful, because everybody wants to know where the big long-term trend is going to come from. Well, one of the things I showed you, is we have the ability to actually find them. When other people can, like in the two year or in the five year or the Japanese yen, we have the ability to find these, and these are the trades that can make you rich if you get them and you get them right.

That's the 2022 year in review. We're getting ready for 2023. I'm really excited for 2023 I think it's going to be an amazing year. I'll be sharing some ideas with you about 2023 early next year. In the interim, what are you doing to be ready? Because this applies to everybody. If you're an intraday trader, it's still good to know that you're in this kind of trend. The best intraday trends come from the big macro trends. As the market moves, it's much easier to make money when the market moves. Where are you at on this? Are you ready? Have you reviewed 2022? Are you going to be ready for a great 2023? Next week will be the Trader Tip Tuesday for 2023. Isn't that crazy?! Just like that. Alright, God bless. I hope all of you have a Happy New Year. I'll see you next year. Bye.