Free Trend Following Trade Ideas For April 2019 (Part 5):
Well, it looks like there’s no stopping bulls now! Because driven by a strong start to earnings season, the major indexes are finally back at fresh all-time highs. And with blue sky territory ahead, I think the onus is on bears to prove the path of least resistance isn’t higher.
So I’m excited to review this big picture of price action with you today, and then share some specific stock charts that might appeal to different trading strategies
Okay, as usual with these weekly updates let’s start by recapping some of the major market developments to better contextualize and gauge expectations for individual trade ideas.
April 2019 Market Analysis (Part 5):
S&P-500 Makes New High:
What a wild ride the last couple quarters have been, especially in the large cap stocks of the S&P-500. After dropping nearly 20% to end 2018, most parts of the market have rallied right back to new highs.
One of the easiest ways to see this is with the weekly chart of SPY, the actively traded ETF for $SPX
Pretty impressive, isn’t it? And it’s another good example of why I like to follow price rather than try to predict what will happen next. After all, I think if anyone had predicted this kind of rally back in December, they would have been labeled as crazy!
But here we are. And the good news is, when you look under the surface, the leading parts of the market are really acting well. For example…
Large Cap Tech Earnings Off To A Good Start:
In addition to SPY breaking higher, the growth leaders in the Nasdaq 100 index (as shown via QQQ) are also breaking out to fresh highs. So first, here’s the weekly view of QQQ which you can see is jogging right along with SPY:
In addition to this big picture progress, some of the individual names are also acting well. In particular, FB, MSFT and AMZN all reported strong results last week and finished the week at recent highs.
The combination of earnings beats and strong follow-through price action are an encouraging sign that the positive trends might be able to continue.
Along those lines, there was another reassuring development in stocks last week that’s worth touching on.
Weak Parts of Market Bounce Back:
You’ll recall from last week’s note I was concerned about the action in some of the lagging parts of the market, like healthcare stocks and the Russell 2000 small caps. But I also said it wasn’t likely this tail would wag the dog, and so long exposure still made sense.
And in fact, that turned out to be the case with both the small caps and healthcare sector putting in meaningful bounces. First, you can see XLV as a proxy for healthcare here:
This kind of bounce is exactly what bulls hoped to see. So rather than pull the rest of the market down, healthcare seems to have rallied with the pack.
And further to the point, you can see despite the fact small caps haven’t made a new high since February, this group really doesn’t look bearish either.
So heading into next week, I remain comfortable on the long side. But that does’t mean I want to get complacent either. So in terms of potential red flags, I will be on watch for further weakness in oil or semiconductors that could spread to the rest of the market.
Now with all that as backdrop, let’s take a closer look at some individual stocks…
Free Trade Ideas For April 2019 (Part 4):
To start us off today, I want to mix things up by highlighting a few pullback trade ideas that’ve caught my attention. Then after that we’ll move into the usual breakout and trend following charts.
Dip Buying Trade Ideas:
With the market acting well right now, there actually aren’t all that many dips to buy! But I did see a couple charts catch my eye as I did my weekend review. And interestingly enough, the first one is an ETF.
Take a look at the daily chart of EEM below (as a proxy for emerging markets). This asset class has really turned things around in 2019 and this recent bounce might provide an attractive entry.
One of the other reasons I like this idea is because dip-buying with ETFs gives you some unique advantages vs. only looking at stocks. For instance, many brokers now offer commission-free ETF purchases and sales. Plus, ETFs themselves have some unique advantages.
A challenge with dip-buying is avoiding catching a falling knife. And this can be especially problematic with company-specific issues. But ETFs that hold a basket of stocks (like EEM), insulate you a little bit from the volatility of individual tickers.
Now, the other part of the market that I think looks ripe for dip-buying is energy stocks. Despite ending last week on a soft note, oil has been acting well overall and it’s possible we cold see a bounce. One stock that has my eye in this regard is BP.
The stock looks like it’s pulled back to support and is starting to get overbought on the short-term timeframe. It’s also still above a 200-day moving average, which may mean there’s some long-term momentum that could come back into play.
Now as with all ideas shown here today, they are just starting points for further due diligence. And please remember to double-check earnings dates, as we’re in the heart of the season right now. How you trade earnings can have a material impact on your results!
So while my main focus remains buying breakouts and following trends, I think trading pullbacks can offer appealing risk/reward trade setups and help diversify your results. If you’re interested in learning more about how to get started buying the dip, I’ve decided to extend the Dip Buying Toolkit Pre-Sale for one more weekend.
The reason is, I’ve already got some really great feedback from the first batch of readers and am already making updates to the next edition! So if you missed out last week I wanted to give you one more chance to get in early.
Now, let’s get back to the main task at hand – riding uptrends!
Trend Following Trade Ideas:
With the market indexes at fresh highs, there are no shortage of stocks giving fresh entry signals. So although I’ve shared some of my favourites below, there are plenty of great setups on the 52-week high list.
To get us started, I want to point your attention to Adobe (ADBE), which is but one of many large cap tech stocks that finished the week on a strong note. Take a look:
I like the momentum here, and the top-down sector strength from tech more broadly gives me a bit more confidence new highs will beget new highs.
If you’re looking for something a little less pricey though, I think Bandwidth Inc (BAND) could be worth a closer look here. I already own this one but like the way it’s finished the most recent candle on a strong note after consolidating for a few weeks.
The other thing I like here is the underlying business. Although the company doesn’t have a huge track record, revenue and EPS are both growing. And with only 20 million shares outstanding and no overhead supply, this one could keep squeezing up.
Okay, next up I want to share a lower-priced idea in Radian (RDN). I appreciate this chart is a little bit stretched on some timeframes, but I like the potential for a big leg higher and want to keep it on watch this week for new highs.
The key here for me is to follow price. As much as I’d like to see a big breakout higher there’s also the possibility this is a giant trading range and RDN is about to reverse lower. But no risk, no reward. Just be careful to always have an exit plan!
Last but not least, I want to share a look at the education support company Grand Canyon Education (LOPE). The stock has recovered well from last year’s drop and may be starting to gain momentum out of this sideways consolidation.
If you’re looking for a lower-priced alternative, TAL is somewhat of a peer company with a similar looking chart. I’m hoping these new 50-day highs can lead to 52-week highs in short order.
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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