December 2019 Market Update (Part 4):
The final trading year of 2019 is in the books! It’s hard to believe, but another year has flown by. The good news is, 2019 was a productive one for stock market bulls. And in this weekend update I’m eager to show you the strong trends taking us into 2020.
So as I was saying, overall markets are looking quite strong heading into the end of the year. In fact, it’s almost the exact inverse of where we were at this time last year!
December 2019 Stock Market Recap (Part 4):
After 12-18 months of sideways trading ranges in most of the major stock indexes, we’re starting to break out. And across the board, the trend looks higher.
First up is SPY, to show you how S&P-500 stocks have been trending:
Pretty good, right? And the good news is, it’s not just large-caps that are acting well. Because once again, the Russell 2000 small caps were able to follow through higher:
It’s great to see small caps continuing to trend up out of their sideways trading range. I’ll be watching closely to see if this trend can continue into the end of the year and the start of 2020. Fingers crossed.
Another promising area after a slow couple of years are emerging markets. Check out EEM, which is holding up well after a strong bounce last week. Could this be the start of a new uptrend?
Put together, all of this bullishness rolls up to the All-Country World Index, which looks set to finish 2019 on a strong note.
Of course, it’s reasonable to expect a pause here after so many up weeks in a row. But a pullback might present a good dip-buying opportunity, if you’ve missed the move so far.
Finally, it’s also interesting to note that while US stocks march higher, risk-off asset classes like treasury-bonds and gold have pulled back at the same time. Here’s a look at the TLT ETF to show you what I mean:
As long as this retreat is happening in an orderly manner, I’m keen to think these trends continue. That said, if bond prices do crash (and yields subsequently spike), we might see some short-term panic. But at this point, that’s probably just contingency planning.
As for next week, I expect volume will dry up a little with the market closed for Christmas Day and a half day on boxing day. So the best move might be enjoying the holiday season and not force too many trades.
But with the market looking so good, there is one stock I want to point out to you.
December 2019 Trend Following Trade Ideas (Part 4):
With the market trending well the last few weeks, one of the challenges is finding ideas that aren’t too extended. In these cases, another strategy can be to look for stocks that are near highs, but going sideways.
The idea is, if the bull market is going to continue, then new areas of leadership will rotate higher to keep the indexes chugging along. And as I mentioned last week, one potential sector that meets that bill are the consumer discretionary services.
One of the biggest components in that group is Amazon (AMZN), which as you might know, has been going sideways for quite some time and remains below the July 2018 highs.
Now personally, I think I’d wait for a little more strength before jumping in. But on the other hand if you don’t mind waiting around a little bit, buying in early could help you keep a tight-stop loss to increase your risk/reward on the trade.
More specifically: using 2x the weekly ATR would indicate a stop around $1640, just below the recent consolidation. I like this trade setup and certainly wouldn’t want to stick around if AMZN fell below this level.
And it’s not just about the technicals. As one of the largest companies in the world, I’m sure you’re familiar with AMZN. From their Prime offering to Amazon Web Services, you probably interact with the company on a regular basis both intentionally and without even knowing it.
The interesting thing though is how this strong economic moat shows up in the financial statements of AMZN. To help connect the dots, here’s the financial data from Morningstar:
The most impressive thing to me is the dramatic increase in revenue. Without fail, AMZN has multiplied their top-line output over the past few years with no signs of slowing down.
Similarly, margins have also crept higher as the company continues to benefit from its economies of scale. To the degree this continues, AMZN appears able to print earnings growth at will. So what’s not to love about that?
Now to be fair, AMZN isn’t exactly a cheap stock. But quality often comes at a premium price. And after many months going sideways with top-line performance continuing to creep higher, this might be a reasonable time to open an AMZN position.
Just be sure to have a plan for when to sell so you can structure the trade appropriately.
Now before we finish…
I also want to share my existing trend-following trading positions for US-listed stocks with you. So here they are in a FinViz watch list! Take a look if you’re still itching for more potential trade ideas.
They might be of interest because everything is laid out in charts so you can easily see what’s what.
Because actually, there have also been a lot of great trends this week so I’m quite bullish on many of my existing holdings.
I hope seeing my current stock portfolio helps give you more context on how I’m seeing the current market, AND, where I’m placing my bets.
While I’ve obviously shown you some of my favourite picks for the week ahead, I can also help teach you how to fish for your own trading ideas!
Just keep reading.
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