Free Trend Following Trade Ideas For March 2019 (Part 2):
It’s been a long time coming! But after two months of stock prices screaming higher to start the year, we finally saw a pullback last week. In fact, the market actually dropped everyday, Monday through Friday.
So let’s take a look at this price action to try and get a sense for whether the sellers are just getting started… or, if this is just a higher low, which dip buyers can once again take advantage of!
So first, let’s quickly recap some of the headline performance. That way you can put this recent pullback in context.
And then after that, I’ll show you some of my favourite stock charts which are holding up best in the current market. Sound good?
Great. Then let’s dive in!
March 2019 Stock Market Update (Part 2):
For the past few weekly market updates, I’ve been stressing how stretched the stock indexes are (as well as many of the underlying stocks). So while it made sense we’d see a snapback rally from oversold conditions at the end of December, the sheer magnitude of this climb higher has been nothing short of impressive.
But at last, we’re seeing some selling come online at prices that have previous marked medium-term tops. In fact, the alignment with the February 2018 top on the SPY weekly chart could imply this is once again a significant level.
Now while SPY did close slightly off the lows of the week, I think bears still carried the initiative, pushing prices lower for 5 days in a row. And outside the popular large-cap index, things didn’t fare much better.
That’s because bears also made their presence felt in small-cap stocks and leading tech and consumer discretionary stocks. At the same time, treasuries bounced in a meaningful way, which further reinforces this risk-off narrative (at least temporarily).
Finally, I also want to point out it’s not just US stocks starting to feel the heat. Overseas, emerging market and European markets are also pulling back from sharp year-to-date rallies.
But in particular, I’ll be watching the daily and weekly charts of EEM, the emerging market ETF. Because after some very constructive price action the last few months, EM markets are starting to come under pressure again. And I’m curious if it’s the start of something more serious.
Here’s the daily view so you can see what I mean…
Now of course there’s a chance this is just a head-fake lower – anything’s possible in the markets. But based on what’s happening right here and right now, I think it’s worth being cautious and considering the potential of more downside.
Now at the end of the day…
While the immediate outlook does look a little bit cloudy with more downside possible, the long-term context is also murky.
For instance, the 200-day moving average is basically flat on most of the major indexes. And with the snapback from oversold conditions seemingly complete, it may take some time for the next major trends to develop as bulls and bears battle to find equilibrium.
So consider: patience may be your best position! And with cash offering more attractive yields, it’s okay to sit on the sidelines. But it can also help to be prepared in case the market does get going again next week. And that’s why I want to show you some of my favourite charts heading into Monday’s opening bell.
Trend Following Trade Ideas For March 2019 (Part 2):
With most stocks pulling back right now, there aren’t too many bonafide breakouts to choose from at the moment. There are a couple 52-week highs I’ll show you, but the rest rest of the ideas are consolidating near highs, and would only trigger an entry on further strength.
Personally speaking, I wouldn’t want to be putting on a bunch of exposure if the market is fading and stocks aren’t following through higher. But if we do see some buying, one stock I’d be interested in is InflaRX (IFRX). It’s a somewhat recent IPO that’s finally broken out to close at all-time new highs.
The biggest caveat I have wth this stock is how the chart is pretty volatile. So I’d consider using a small position and a wide stop loss to avoid the risk of getting whipsawed.
Next up, I want to show you the chart of VLRS. This company is a low-cost Mexican airline that might be in the midst of starting a new uptrend. Take a look…
So for those of you that like low-priced ideas, I think this one may be of interest. The stock could reverse lower, of course. But the emerging bottoming pattern is pretty compelling, don’t you think?
Now moving on, I want to revisit an old trend-following favourite, Heico Corp (HEI). As you can see, this one has clearly demonstrated the potential to trend for months on end.
That’s why I’m keeping it on watch this week to see if new highs can trigger an entry signal for me. After such a long and volatile correction, I’m cautiously optimistic this one can get going again for another leg up.
Along the same lines, check out the chart of CDAY, which has a similar if more subdued setup to HEI above.
Again, my approach with these ones would be to wait for an entry signal. A lot of the time the market moves in a convoy, so the last thing I want to do is put on a bunch of long exposure right when the top-down trading environment is shifting bearish!
And by the way, with the market pulling back a bit right now this can also be a good time to look for dip-buying ideas. Unlike trend-following ideas, these are usually quicker trades where you hope for a quick bounce out of oversold conditions.
Two charts that come to mind for me in this capacity are Brinks (BCO) and Par Technology (PAR). In both cases I’d look to buy if the stocks opened higher with a stop just below the recent hammer candlestick lows. And then sell when the short-term RSI number gets back up to 40 or 50.
So first, here’s BCO:
And now PAR:
Obviously this is a different approach than buying new highs in uptrends (which remains my preferred approach). But if the market continues to chop sideways or pullback further, these quick oversold trades could help diversify your results.
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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