Inside Callum Thomas’ Topdown Charts analysis process

In this week’s episode of Opto Sessions, Callum Thomas — the founder of macro-research firm Topdown Charts, which oversees trillions of dollars for clients that consist of institutional investors and assets allocators — discusses why chart analysis is an important factor in investment research. He also breaks down the seasonality concept in markets and how he uses it in his research process.

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“If you’re somebody who’s visually inclined, then seeing information as a whole picture speaks thousands of words,” Callum Thomas, the founder of macro-research firm Topdown Charts, tells Opto Sessions.  

Chart analysis is central to the firm’s analysis process as it helps to visualise trends in the markets, Callum explains. His firm oversees trillions of dollars for their clients, which include institutional investors and asset allocators, and uses a three-tier framework that’s centred on valuation, cycle and tactics to advise on potential investment opportunities.

“You can communicate the world’s data in a single chart,” Thomas explains. “Ultimately, the main thing is that [charts] are pieces to a puzzle. As a researcher, in any field but especially this field, you’re trying to put those pieces together.”

Before founding Topdown Charts in 2016, Thomas had started out at the New Zealand Stock Exchange, where he was involved in consulting, corporate strategy, economic research and market analysis. He went on to work in economic and strategic analyst roles at AXA Global Investors, later being promoted to investment strategist at AMP Capital.

“You can communicate the world’s data in a single chart” - Callum Thomas

Thomas further honed his research process during his time at the multi-asset group. “Managing to have a real front row seat to absorb that knowledge [was pivotal to refining my own approach],” he says, adding that it requires having a holistic picture and “not being dogmatic but mindful of the limitations and risks”.

Seasonality in markets

One investment concept that Thomas has recently been discussing is the market’s seasonality, which refers to the typical performance of assets during certain periods of the year based on historical analysis of average returns.

“The key point is that you’re basically looking for any patterns, which is kind of what you're trying to do with anything really. But in this particular type of analysis, you’re seeing if there is any kind of reliable pattern that goes on across the year,” he says.

Based on previous research that’s been done on the topic, Thomas explains that it’s widely understood that markets tend to trade sideways with a downward drift between May and November. December, on the other hand, is often seen to be characterised by a year-end rally.

Another interesting phenomenon that typically occurs is seasonality in different asset classes. “For instance, you see seasonality in commodities, which reflect actual physical things like seasons that affect crop growth or seasons that impact demand like when people need more fuel in the winter, for instance,” he says.

Looking to September, on a historical basis, the month tends to either perform positively 53% of the time and negatively 47% — basically, 50/50. However, Thomas warns against averages, saying that they can deceiving and there is a lot of exceptions to the seasonality rule.

“I would describe seasonality as kind of a secondary factor that you might look at, after you've looked at everything else. Going back to our framework, you’d probably have looked at valuation, cycle, policy, sentiment positioning and technical first.”

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