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Right, unpopular opinion of the day. I like PMI's. I think they're information-rich, and one of the best leading indicators available.

Idiot's guide to PMI's ๐Ÿ‘‡

An Idiotโ€™s Guide to PMIs
IHS Markit describes their โ€˜Purchasing Managersโ€™ Indexโ€™ (PMI) as a survey-based economic indicator designed to provide a timely insight into business conditions, providing some of the earliest signals of economic performance.

They're not perfect though! And they frequently get misinterpreted due to excessive focus on the number being better or worse than the last time.

The sub-components are a good way to track themes (e.g. supply chain strains) ๐Ÿ‘‡

And this is packed full of good info ๐Ÿ‘‡

Monthly PMI Bulletin: April 2022
The global economy expanded for a twenty-first straight month* in March, according to the JPMorgan Global PMIโ„ข (compiled by S&P Global), but the rate of growth eased to the slowest since January.

PMI's are not a magic pill, and they don't have all the answers. No panacea.
It's all just information. ย 

But if we think about the economic/business cycles in conjunction with PMI's, there's a sequence that stands out.

As monetary policy is tightened, the business cycle will subsequently start to slow.

Take this example ๐Ÿ‘‡

Now, does it matter if the lag is 8 months or 18 months? Well, it's not my chart and I haven't done the maths, but there are definitely more variables to drill into. The speed and amount of tightening are the obvious ones.

Either way, it makes sense that when central banks tighten, this will eventually will slow economic activity.

How about the profit cycle? ๐Ÿ‘‡

(Y/Y = Earnings Growth)

What underpins the assumption here? If demand is strong, price increases can be passed on. Manufacturers struggle to increase output sufficently, and everyone has pricing power.

The end consumer has to suck it up or miss out. In theory, these conditions are peak profitability.


Worldwide optimism slipped to a 15-month low, underpinned by deterioration in confidence across both the manufacturing and service sectors.
Panellists widely cited concerns surrounding Russiaโ€™s invasion of Ukraine, COVID-19 disruptions and their consequent impact on prices and borrowing costs moving forward
As such, growth concerns that have mounted so far may well be warranted as reflected by the latest PMI readings.

Input costs are still going up, while optimism is going down.

And consumers didn't pay down as much of their debt in February as they typically would (after the Christmas spending binge) ๐Ÿ‘‡

Macrodesiac News Channel
Consumer Borrowing in U.S. Surges by a Record $41.8 Billion U.S. consumer borrowing surged in February by the most on record, reflecting outsized increases in both credit-card balances and non-revolving loans. Total credit jumped $41.8 billion from the prior month after a revised $8.9 billion gaiโ€ฆ

The direction of travel is clear. Growth is slowing. It's the long and variable lags we have to look out for.

Earnings season starts properly next week.

Last quarter company executives were shouting about their pricing power. We'll be watching to see if they can keep that up...

Moved my stops to breakeven, can't lose

David had his take on this yesterday ๐Ÿ‘‡

A LOT of traders think that moving stops to breakeven is the best way to protect the downside.

If you cut your losers short, and let your winners run you can't lose.

Or maybe you just lose more slowly...

Let's take a look at USDCAD and use a recent example ๐Ÿ‘‡

"CAD is approaching a decent area to monitor for a reversal"

๐Ÿ”” RBA Going Slow, BoC About To Go Fast & ETF Optionality
The RBA lost patience, but no hikes yet. The BoC are about to go bigAnd the โ€˜optionalityโ€™ of ETFโ€™s

And reverse it did.... ๐Ÿ‘‡

When you see a daily candle like that, you've got to think odds favour the long.

Imagine steaming in the next morning ready to buy and this is what you find.
The box marks the Asian session. ๐Ÿ‘‡

Simple strategy:
Buy the retest of local support at 1.2492.
Stop 10 pips below the Asia low at 1.2470.
Conservative target of the next daily level at 1.2588.
Get filled as Europe opens, and then it goes nowhere for a bit...

Then this happens...

Asia low was flushed, closed back above. Should see some upside now...

You're onside on the trade, and it looks like it's breaking out of the local range...

Excellent. Stops to breakeven. Nicely in profit and I can't lose now!

Sh*t. Stopped at breakeven. Even the queen's trolling you. And then the trade runs on to target.

At least you didn't lose money though, right?

Of course, there are rules and processes you can follow that might mean you didn't get stopped out in this scenario.

And while this is true in theory ๐Ÿ‘‡

If you cut your losers short, and let your winners run you can't lose

In practise, it's a lot harder than just moving your stops to entry. That might cut your losers short, but it will often cut your winners short too...

The point isn't to say that moving stops to breakeven is never a good idea.

It's that moving stops to breakeven just so you feel better or avoid losing...
Well, frankly, that's just dumb. The market doesn't care about your feelings.

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