Free Trend Following Trade Ideas For December 2018 (Part 3):

Talk about another interesting week in the market! While this time of year is usually smooth sailing for stock market bulls, 2018 has been a little different. And the last few days of trading were no exception. So let’s recap the action and prepare for Monday’s opening bell.


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Now before we get into specific stock charts, I want to take a minute to recap some of the big picture trends influencing this market. Because while I’ve been cautious with a large cash position for months now, my outlook remains neutral at best.

December 2018 Stock Market Analysis (Part 3):

Usually, the last few weeks of the year are a great time for stock market bulls. And while it’s still possible we get a seasonal end-of-year rally to take us into 2019, the technical picture doesn’t look great at the moment. So…

Just like you check the weather before going outside, I think it’s helpful to examine the market climate before looking for individual trade ideas. That’s because this kind of top-down analysis can help inform what to expect, and how to prepare.

Unfortunately for buyers, the current market outlook isn’t exactly clear skies. In fact, the selling continued this past week and the indexes actually pierced through key technical support levels.

As an example, I want to start with the SPY ETF (which is an actively traded tracker of the S&P-500). Because after a multi-month trading range, the index finally put in a new closing low:

Free Trend Following Trade Ideas For December 2018 (Part 3) SPY

Now it’s possible, this is just a big head-fake before we rally back up towards the top of the range (around $280). But I think the more likely case is that this week was a failed bounce that’s now breaking down. And with prices below the 200-day moving average, I’m inclined to give sellers the benefit of the doubt here.

Another concern for me is this weakness isn’t just being seen in US stocks. Emerging market and European indexes are also near 52-week lows, indicating equity selling might be more widespread (and thus likelier to continue)

An easy way to visualize this global picture is with ACWI, an ETF for the all-country world index. You can see on the weekly chart below, this one is also hitting new lows, with a bunch of overhead supply too.

Free Trend Following Trade Ideas For December 2018 (Part 3) ACWI

So once again, it seems like the path of least resistance might be lower – or put another way – a spirited bounce back up to new highs is likely to face some challenges. The big volume on these recent down days also implies the bears might be invigorated and ready to keep pressing.

Next, I also want to point out the chart of the small-cap ETF, IWM. As you might recall, small caps actually topped out ahead of the other indexes in September. Unfortunately for bulls, this hasn’t improved…

Free Trend Following Trade Ideas For December 2018 (Part 3) IWM

With IWM breaking down again after a multi-month consolidation, I’m again inclined to think the next leg of this market might be lower. And even if we do manage to rally the next two weeks into the end of the year, it’s possible this could just end up being a retest of the breakdown.

Finally, there are also some murmurs of trouble coming from the leveraged loan markets. Without getting into the specifics, this has become a trillion dollar market with ever-loosening lending standards and questionable liquidity.

Despite that, there are a couple of ETFs that track the sector and as you can see in the SRLN chart below, after years of fun, the air air appears to be coming out of the balloon quickly

Free Trend Following Trade Ideas For December 2018 (Part 3) SRLN

Of course, the worry is this fear creates a rush for the exit and weakness spreads throughout the high-yield corporate bond market and beyond. So all that to say…

I think hunting for breakouts in this market is a little bit like paddling against the current. While there are always some leading stocks, the pickings are slim and failed breakouts are more likely. So I prefer to use smaller position sizes and always stick with hard stop losses in these kind of conditions.

Now with that in mind, let’s drill down to some specific stock charts…

Trend Following Trade Ideas For December 2018 (Part 3):

With the market acting a little bit soft lately, I’m skeptical of breakouts following through here. But the great thing about writing these weekly updates, is it forces me to put my bias aside and just focus on the charts. So if we do get a burst of momentum to take us into Christmas, here are some of the better looking charts I’m watching…

First up, Marcus Corp (MCS) is acting pretty well, holding near all-time highs. This relative strength is impressive considering the current market climate…

Free Trend Following Trade Ideas For December 2018 (Part 3) MCS

With shares in striking distance of a breakout, I’ll be watching MCS carefully these week for a potential next leg higher.

Ciena Corp (CIEN) is another stock that’s bucking the trend, with it’s chart closing near the highs into the end of this most recent trading week

Free Trend Following Trade Ideas For December 2018 (Part 3) CIEN

On the back of this strong price movement, CIEN has also been beating fundamental estimates the last couple quarters. And personally,

Now, another possible area of stabilization out there is emerging markets. While this group is still near 52-week lows, it’s starting to show some positive signs. And one of the best looking emerging stock markets right now is Saudi Arabia, as shown via KSA

Free Trend Following Trade Ideas For December 2018 (Part 3) KSA

Once again, my plan with this one would be to wait for a breakout from the current consolidation. It’d be even better if we saw this on the back of EM strength more broadly.

Moving on…

The last chart on my list today is Dominion Energy Midstream Partners (DM), which is starting to string together a pretty compelling uptrend…

Free Trend Following Trade Ideas For December 2018 (Part 3) DM

While this stock did previously get crushed, the recent buy volume has been impressive. As long as you manage risk I think this one could be worth a try

And there you have it! Now I think all these ideas are dependent on an accommodating market. But if we do get going, I’m hoping these charts can provide some opportunity. 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.

And plus…

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.

Speaking of…

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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