Free Trend Following Trade Ideas For May 2019 (Part 1):
Welcome to May! It’s hard to believe we’re almost halfway through 2019 already. But the first third of the year has flown by; and for stock market bulls, what a ride it’s been! So naturally, I’m extremely curious to see if the good times can keep rolling into May.
And the good news is, markets did finish on a strong note last week. So in this weekend’s update, I want to review this overall market progress. Then after that, I’ll also share some of my favourite individual stock chart and ETF ideas.
Alright, as usual I want to point out some of the bigger trends taking place in the market as a whole, before digging into specific stock pick ideas.
May 2019 Stock Market Update (Part 1):
While we’ve only had a few trading days in May so far, it’s been already been quite dramatic. Because after Wednesday’s early morning reversal, bulls came out of the gate strong Friday and pressed their case into the close.
Now heading into the first full trading week of the month, it’ll be interesting to see if buyers can maintain control of the tape and close above Wednesday’s opening print. Here’s the daily chart of SPY to help you see what I mean:
It’ll be interesting to see how price acts at this prior level. Can bulls charge through? Or, will this be resistance in the months ahead? Of course nobody can predict the stock market 100% of the time.
But we can try to look for clues of which way the momentum is moving…
Small Cap Stocks Finally Crack The Ceiling:
One of the things I’ve been watching all year is the relative under-performance in small cap stocks the last few months. That’s why it was nice to see the Russell 2000 (via the IWM ETF) finally poke above the recent trading range:
But it’s not just the higher high here either. Because I also like the way IWM consolidated in a contracting trading range the lat few weeks, before finally popping. Hopefully, this can act as a base of demand to keep prices trending up!
And if we do see more upside momentum in these small caps, it’ll be interesting to watch whether a breakout in large-cap tech stocks can follow their lead.
Nasdaq 100 Knocking On All-Time Highs:
Similar to the large cap S&P-500 stocks represented in the SPY chart I showed you earlier, the Nasdaq 100 index remains in a tight channel just below all-time highs. And while prices are still slightly under the top of the trading range, it appears the path of least resistance remains higher.
Now in addition to the index, I also think many of the underlying components of the QQQ ETF are also looking bullish. For instance, consider the daily chart of FB:
And keep in mind, FB recently beat earnings, gapped higher, and has now been holding in this current zone. With price above the 200-day moving average, as well as the 50-day sloping higher, I have to give the edge to the bulls for now.
But you know what? It does make sense to pay attention to the weaker parts of the market too. After all, the downside has to start somewhere and an ounce of prevention is worth a pound of cure.
So keeping your eyes open to potential trouble spots is usually a worthwhile endeavour…
Oil, Materials, and Industrials, Oh My!
One thing you might have noticed with the October-to-December correction in 2018, as well as the subsequent rebound in 2019, is how oil and the stock market moved in tandem, side by side. They both fell lower, and then they both rose higher.
So with oil on the ropes this past week, I think it makes sense to pay attention. To help you see what I mean, here’s the chart of WTI Crude, where you can see the short-term trend has been lower:
Thus as I look ahead to next week, I’ll be curious to see if potential support comes online (perhaps around $60), or whether oil bears continue to gain momentum. The same analysis applies to energy (XLE) and material (XLB) stocks generally.
The strongest of this bunch though is the industrials group. And I think this is saying something because the stocks in the XLI sector ETF haven’t really gone anywhere in over a year. Take a look…
This is one part of the market I’ll be watching closely in the next few weeks. Because any strength here could lead to a lasting leg higher. But on the other hand, more back-and-forth might put a damper on these old-economy sectors and maybe even the market as a whole.
On balance though, I think bulls are winning in the parts of the market that matter most so I’m personally comfortable being invested on the long side. Just remember…
Earnings season is still in full swing, meaning all this analysis is happening in a very dynamic environment that’s subject to change at any time!
So just be careful to double check any new buys as well as your existing positions for their reporting dates. Because as I’m sure you know, these can have a huge impact on your trading results!
Now with that little disclaimer out of the way, let’s dive into some specific stock chart ideas!
May 2019 Trend Following Trade Ideas (Part 1):
As the markets continue to trend higher in 2019, there are no shortage of uptrends to jump on. And so far this year, the reaction to earnings beats has been pretty good, with many momentum stocks charging to new highs (looking at you, SHOP).
So let’s hope these post-earnings announcement drifts can continue throughout the quarter (and beyond!) Plus in addition to all the momentum, there are also two dip-buying ideas worth mentioning.
Dip-Buying Trade Ideas – May 2019 Part 1:
I’ve been sharing some dip-buying ideas in the last couple weekend updates. And while I prefer to focus on stocks making strong highs, I realize buying pullbacks in uptrends and trading support levels can provide appealing risk/reward and easy-to-follow trade plans.
Dip-buying trades can also help you diversify your results (as opposed to just trading breakouts). So that’s why I’ve been sharing more dip-buying ideas lately. And so today, I wanted to show you a couple of stocks that have pulled back to trend-line support and are flagging oversold.
First, check out Oneok Inc (OKE), which is above the 200-day moving average but pulling back significantly. I think a small position could be worthwhile, considering the degree of oversold and the potential for support to come into play.
With volatility in OKE at multi-month lows, I think the risk/reward improves further and a stop 1 ATR below recent lows could be an easy trade to manage.
Along the same lines, Foot Locker (FL) is also pulling back to support and oversold via measures of short-term RSI.
Same idea – FL has been in a slow drip lower and this is a bet for a little reversion to the mean. I like to take profits quickly in this type of trade (for example when RSI bounces back up above 50). But if you’re quick and nimble, these kind of trades may be up your ally.
If you want to learn more about dip-buying I have a super-detailed free blog post you can read here. It’s a nice compliment to my regular trend following strategies.
Speaking of trend following…
Breakout Trend Following Trade Ideas For May 2019 (Part 1):
As I was saying earlier, with the indexes continuing to trend up, there are no shortage of stocks making new highs. So in this section I want to show you a few of my favourite uptrends as we head into the first full trading week of May.
First up, you might think Netflix (NFLX) would be feeling the heat with the new competition from Disney in the streaming department. But in my opinion, the chart says otherwise:
After a long and tight sideways consolidation, NFLX is popping to multi-month highs and if I had to wager, I’d expect this momentum might be more likely than not to keep trending.
Now another consumer-discretionary name that has my eye right now is Abercrombie & Fitch (ANF). This stock has been charging higher lately and after finishing last week on a strong note I wanted to point it out for your perusal:
I know this one has been a little bit bumpy but, my hope is new 52-week highs will lead to more 52-week highs as the company continues to churn out improved operating results.
Another chart with the same kind of look-and-feel this week is Cintas Inc (CTAS). I like the way this one has been able to coast past prior highs without too much resistance:
See what I mean? With blue sky territory ahead I’m cautiously optimistic the path of least resistance can continue up, unchanged. But if this chart does feel a little extended for you, then perhaps you’ll prefer The Trade Desk (TTD).
This stock hasn’t confirmed earnings yet but they’re likely coming up later in May. For now though, the weekly chart is stair-stepping higher with a particularly constructive look to last week’s candle:
I really like the way TTD has been able to consolidate and then move higher in such an orderly manner. With only 46M shares outstanding I’m hoping that’s reflective of a tightly-held float that will help propel the stock price higher.
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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