Navigating the Investment Landscape: Insights into Market Trends, Technical Analysis and Strategic Planning

Good evening, everyone!  

It's wonderful to meet you all at Diamond Ridge Financial Academy. I hope my insights can inspire you, guide you on a more steady investment journey and help you achieve even greater success!

Last night, we dove deep into the definitions and practical uses of support and resistance levels. We focused on how to accurately identify these key technical indicators using historical price trends, the 21-day moving average, psychological thresholds and round numbers. We also analyzed real-life cases of their application in trading the FTSE 100 Index and NVIDIA stocks, helping you better understand their operational logic in different market conditions. Technical analysis isn’t overly complicated. Once you master the basic tools and practice often, it can become a powerful aid in making investment decisions.  

Tonight, we’ll discuss how recent “rate cuts” are influencing the market and explore investment patterns. Using simple technical signals like the 21-day moving average, we’ll help you further refine your trading strategies. Before we begin tonight’s session, let’s first take a quick look back at today’s market.

Today, the UK stock market fell as expected. Although the FTSE 100 Index briefly dipped below the 8,100 point support level during the day, it ended at 8,105, which was entirely in line with predictions. Three factors contributed to today’s drop in UK stocks:  

1. The panic sell-off triggered by yesterday’s crash in the three major US indexes. While the Fed delivered a 25 basis-point rate cut as expected yesterday, its "Summary of Economic Projections" (SEP) revealed significant adjustments to the economic outlook. The SEP forecasted only two rate cuts in 2025, each by 25 basis points, down from the previous expectation of four cuts. Additionally, the SEP projected two more rate cuts in 2026 and one in 2027, with the federal funds rate ultimately reaching 3.125%, higher than the previous estimate of 2.875%.

As shown in the chart, the Fed's rate dot plot released yesterday signals an unexpected slowdown in next year’s rate cuts, sharply contrasting with the market’s earlier expectations for an aggressive rate-cutting policy.  

Investors had bet on aggressive Fed rate cuts to counter economic slowdown, but the dot plot shattered these expectations. This directly hit market confidence, leading many investors to sell stocks to avoid risk. Worries over slower future economic growth and persistent inflation deepened, fueling further sell-offs and ultimately triggering a US stock market crash. The Dow Jones Index saw its worst 10 day losing streak since 1978.  

The core reason for the market plunge was shaken confidence in the Fed's resolve and ability to fight inflation. This unexpected shift in monetary policy not only caused global market volatility but also directly led to selling pressure in the UK stock market.

2. Recent UK economic data fell short of expectations, adding bearish pressure to UK stocks market. According to the Confederation of British Industry (CBI), UK manufacturing output dropped 25% in the three months ending Dec, the fastest decline since mid-2020 and much worse than Nov's 12%. The CBI noted that output fell in 15 of 17 manufacturing sectors and orders also sharply decreased. Economist Ben Jones attributed this to weak external demand, political instability in major European markets, uncertainty around US trade policies and collapsing domestic business confidence combined with rising costs. The CBI further predicts a significant production decline in the next three months

 

Additionally, the government’s investigation into the water sector and news of a potential 36% hike in water bills added to the negative sentiment. These factors collectively worsened concerns about the UK’s economic outlook, keeping downward pressure on UK stocks market.

3. The Bank of England (BoE) announced today it would keep its benchmark rate unchanged at 4.75%, which added more selling pressure to the UK stock market.

Although this decision was widely expected, the split within the BoE and its cautious outlook on the economy sent a clear bearish signal. Six members voted to hold rates steady, while three preferred an immediate rate cut, highlighting internal disagreements about the economic situation and hinting at uncertainty in future rate cuts' pace and magnitude.  

The BoE acknowledged that inflation has been higher than expected recently while economic growth has been weaker than forecast. This reflects a risk of “stagflation,” where inflation remains high, but growth stagnates. While the BoE mentioned that “gradually loosening monetary policy remains appropriate”, signaling room for future rate cuts, it also emphasized that policy must remain restrictive for a sufficient time until inflation risks subside sustainably to its 2% target.

This indicates that the BoE will prioritize controlling inflation, making future rate cuts more cautious and gradual, potentially falling short of market expectations. Such a “gradual” rate-cut approach fails to meet market hopes for aggressive monetary easing to boost the economy, instead intensifying investor concerns over slowing growth and triggering further sell-offs.  

Moreover, the Fed’s earlier announcement of a rate cut while signaling a slower pace of future cuts aligns with the BoE's cautious stance, negatively affecting global market sentiment. UK economic data, especially the fastest manufacturing output decline since the pandemic, combined with persistently high inflation and wage growth, has worsened the market’s pessimistic outlook on the UK economy. This ultimately led to today’s weak UK stock market performance. Investors’ lack of confidence in the BoE’s ability and resolve to address economic challenges fueled more selling, causing the FTSE 100 Index to continue its decline.

Under the impact of the above factors, the UK stock market went through four stages of movement today.

First stage is after last night’s sharp drop in US stocks, the FTSE 100 opened significantly lower this morning. It then rebounded near the 8100 support level.

Second stage, after the Confederation of British Industry (CBI) released its data, showing weaker-than-expected manufacturing performance, the FTSE 100 fell again after an initial rise, breaking below 8100 and hitting today’s low near 8080.

Third stage, when the Bank of England announced it would keep rates unchanged, as expected and hinted at room for future rate cuts, the FTSE 100 began to recover.

Fourth stage, investors after considering all the information, adjusted their positions, leading to the later range-bound movement.

Under the influence of monetary policies in the US and UK, the forex market has seen big swings over the past two days. For example, after the Fed announced its rate decision yesterday, Powell clearly stated that the pace of rate cuts would slow significantly next year. This news caused the USD to rise quickly, leading to a 1% drop in GBP/USD.  

As for today’s GBP/USD movement, before the rate decision, the market widely believed the Bank of England would maintain a tough monetary policy. However, with multiple weak economic data in the UK, the BoE shifted to a less hawkish stance, increasing expectations for rate cuts. This triggered further declines in GBP/USD.  

At its core, whether the GBP appreciates internationally depends on the strength of the UK economy. Better economic data makes the GBP more valuable in global trade. So, the real reason behind the GBP's depreciation is the weakening UK economic data.

Many of you might feel that investing is too complicated after reading this analysis. But the complexity of investing really depends on your perspective. Professional investment teams or our soon to be launched Quantitative Trading 5.0 system, use complex models and huge amounts of data to achieve extremely high prediction accuracy, like scientists designing precision instruments.  

However, for most retail investors, there’s no need to aim for such extreme precision. The market follows the 80/20 rule, as long as your investment knowledge and strategies are better than 80% of other investors, you can achieve stable returns. So, whether you’re an experienced investor or a beginner, learning and improving a little every day will help you earn more in the market. Furthermore, by studying our quantitative trading course and leveraging AI tools, you’ll have a better chance to outperform over 80% of investors and achieve more consistent investment gains.

Of course, another approach is to rely solely on technical analysis. This method is simple, easy to learn and beginner-friendly. While it may not be as precise as combining fundamentals and market sentiment, a short period of study is enough for technical analysis to help investors outperform 80% of their peers.  

Take GBP/USD as an example. Assume the price movements in the chart above correspond to the times when the US and UK central banks announced their rate decisions. Even without considering the monetary policy context, technical analysis alone could identify trading opportunities during these market moves.  

Specifically, by observing the price patterns, you can first notice the red line in the chart, which clearly acts as the dividing line between bullish and bearish trends during this period. In “Chart 1”, when a red candlestick engulfs a green candlestick and the price breaks below both the 21-day moving average and the red support line, the market quickly begins a significant downward trend.

Now look at “Chart 2”. Before the Bank of England’s rate decision, GBP/USD happened to rebound to a resistance level. Then, after the rate decision, the price failed to break the resistance level and formed a red candlestick engulfing a green candlestick pattern, triggering another downward move.  

It’s worth noting that these trends could have been predicted in advance through technical analysis, even before the data was released. For students who followed forex trading advice at the time and entered based on typical trading logic, the potential return could have been over 15%. This highlights the beauty of technical analysis, using simple support and resistance levels, you can predict the market’s basic trend in advance.  

For beginners, there’s no need to fear investing or rush to learn everything a professional analyst knows in a short time. Instead, start with the basics support and resistance levels, then gradually learn a systematic trading method. This way, you can easily understand the basic patterns of price movements and steadily improve through practice.

At this point, some students have shared that they’ve gained a lot of investment knowledge recently, while beginners are hoping to learn more every day. Some students have also asked if there will be any learning arrangements during the Christmas and New Year holidays.  

As for the holiday learning arrangements, I suggest that you don’t rush to learn new content. Holidays are a precious opportunity to spend time with family and enjoy joyful moments, so make the most of these beautiful times. Of course, we will provide real-time investment advice during the holidays, so you can use your free time from travel and shopping to earn some extra income, adding more rewards to your holiday.  

If any students particularly wish to learn something specific during the holidays, feel free to share your needs with the assistant. Based on your feedback, I will arrange investment sharing or targeted advice to better suit your needs, supporting both your learning and investment. I hope that during the holidays, not only can you relax and recharge, but you can also keep up your passion for investing, achieving a balance between learning and life!

At the same time, to help everyone stay on track with learning and investing and to thank you for your recognition and support, Diamond Ridge Asset Management has prepared a special mysterious investment gift for all students this Christmas. If you haven’t received it yet, you can contact the assistant now to claim it and we look forward to starting a more fulfilling and efficient learning journey with you!  

Here, I want to send my holiday greetings to all students in advance. Whether it’s the warm Christmas lights or the hopeful New Year’s bell, both symbolize a new beginning. During this special holiday, I hope you can reflect on your past investment journey while spending quality time with your family and make clearer plans for the future.

That’s all for tonight’s sharing. I hope the content above helps you with your investments. In the next lesson, we will analyze price movement patterns through the meaning behind candlestick charts.  

Students who want to keep up with the latest trades, please prepare your trading account and start with a small amount of capital. By learning and trading at the same time, you will not only acquire investment knowledge but also gain substantial profits. Additionally, in the upcoming trades, feel free to ask me any investment questions.  

After tonight’s lesson, please think about:  

1. What specific impacts does monetary policy have on the investment market?  

2. What price movements can be discovered through support and resistance levels?