Free Trend Following Trade Ideas For May 2019 (Part 2):
Finally, we’ve got a pullback on our hands! Because up until now, 2019 has been a pretty steady climb higher for stocks this year without much resistance. So is the turbulence we saw last week only temporary? Or is it the start of something more severe?
Well, in this weekend’s market update I’ll show you some bigger picture charts to try and help you get oriented with these important questions. And then we’ll take a closer look at some individual trade ideas to keep on watch in case the market gets going again.
Now as I was saying, let’s get started with a step back to put this week’s pullback into perspective. That should provide helpful context when considering particular trade ideas.
May 2019 Stock Market Update (Part 2):
Does May Mark a Change of Pace in Price Action?
You probably don’t need me to tell you but, after week’s of steady grinding higher on the major stock indexes, buyers finally ran into some resistance. And not only did prices come down over the past few trading days, but the volatility has also picked up quite a bit. Not to mention the financial news media is at an absolute roar about the evolving China-US trade situation!
So to the degree these conditions continue, be careful as correlations could rise and prices can move fast.
On the other hand, stock markets did manage to close the week off their lows, and a move higher from here might leave most traders flat footed.
In any case, I think the most recent weekly candle on SPY illustrates pretty well that there’s at least some volatile indecision…
Now the good news for bulls is, many of the leading growth stock charts still look relatively constructive. One week of pullback hasn’t caused too much technical damage, and a bounce from here could be the most likely outcome.
But I do think the uptick in volatility is worth paying attention to!
And to be honest with you, these conditions aren’t always the easiest to trade (which is why I like to zoom out to weekly charts). Because in my experience at least, fast-moving markets leave less room for error and can frustrate swing traders with choppy back-and-forth action.
Additionally, it’s not just US stocks that felt the heat this week.
Emerging Markets Feeling Tariff Pressure?
If you’ve tuned into the financial news media whatsoever the last week, you probably head the trade war rhetoric blasting at full volume. And while I don’t pay too much attention to the news headlines, I am keenly attuned to the price action that follows.
So in the case of emerging markets right now, you can see they also experienced a pullback this week. And unlike US markets, these stocks are still well below their all-time highs. Here’s the EEM chart as a proxy:
Now to be fair, it was encouraging to see bulls muster a bounce from the lows to hold a support line on the weekly closing basis. As a result, this is an area of the market I’ll be watching VERY closely in the days ahead. Because given all the headline-focus on global trade developments, it’s likely this will remain a dynamic situation.
Speaking of global trade, Chinese shares specifically are probably worth keeping tabs on right now too.
As you’d expect, this segment of international stocks has a very similar look to EEM as a whole, which you can see via the MCHI ETF below:
So let’s wait and see if this is just another test of support that ultimately holds, or the start of a more serious rollover. As a trend follower, I’m waiting patiently for price to make a move (without predicting!)
But it does feel like we might be close to a pivotal point, globally!
Will Global Stock Markets Get Stuck Going Sideways?
In our interconnected globalized markets, I think it makes sense to look at equities around the world as a whole. After all, capital moves to where it’s treated best. And it can sure move fast!
So when you look at the weekly chart of the All-Country World Index (ACWI), you can see we’re at an interesting potential turning point. Because after breaking out above the 2018 trading range, this ETF looks like it might be falling back into the prior channel…
If global equities do struggle to get going from here, this could be a further headwind to US stocks. So bulls had better hope this is a simple retest of the trading range, in which case we’d need to see a bounce soon. So against this backdrop, I think a fair amount of uncertainty remains.
But you know what? That’s okay! Because markets don’t trend all the time. They actually need pullbacks and refreshes like this to help power the next leg up.
In the meantime though…
It makes sense to be prepared with a list of potential ideas in case the market does start bouncing again. And depending on your preference, pullbacks like this can provide both dip-buying opportunities, and the chance to focus on the few names with relative strength.
So let me show you a little of both!
Trade Ideas For May 2019 (Part 2):
After weeks of stock prices creeping higher and higher, we finally have some reasonable dips to buy. So to start us off today let’s look at some stocks pulling back from all-time highs. And then after that, I’ll show you some of my favourite charts that are holding up well.
Dip-Buying Trade Ideas:
In stark contrast with recent weeks, there are now quite a few stocks hitting short-term oversold levels after the pullback earlier this week. It just goes to show, you never know what the market will give you and it can help to have different systems for different trading conditions.
And with so many dip-buying stocks showing up on my scan, the hardest part was actually narrowing down the list. My main focus here was avoiding stocks that just reported big earnings misses, and then looking for some signs of support above a long-term moving average.
Now as for the specific ideas, the first one is actually a trade I put on Friday, picking up a small position in NetScout Systems (NTCT). Personally, I like the way the stock is starting to bounce after correcting very sharply.
I’ve placed my stop 1 ATR below the recent low, so I am willing to give it a fair amount of wiggle room. If the trade does work in my favour I’ll exit with a tight trailing stop when the RSI gets back up to 40-50 area.
Along the same lines, the chart of Melco Resorts and Entertainment (MLCO) also caught my eye. The stock corrected sharply after beating earnings and looks to be entering a prior trading range which could act as support.
The other thing I like about this potential MLCO setup is the larger chart pattern. If you zoom out a bit, the stock has been making higher highs all year after bottoming out in November and December 2018.
Thus while the chart does look a little choppy, it could be worth a quick shot. Generally with these dip-buying plays I’m hoping to see some action within a couple of days so I can move
On the other hand, the majority of my trading is still done with trend following breakouts. And in those cases, I’m much more content to let the trade ride.
Let me show you what I mean in!
Trend Following Trade Ideas:
Now with the market doing a little backfilling at the moment, there aren’t that many stocks hitting new highs. But the good news is, this is actually a good chance to separate the best from the rest.
So now I want to show you a few of my favourite charts from the market leaders that continue to steam ahead. As always, please do double-check earnings dates for all the ideas on this page.
First up then, let’s take a look at an old favourite of which I currently own a few shares, Aflac (AFL). The stock has been slowly bumping its way higher for years now. But the current setup has my eye with the chart hitting new all-time highs after a few months of sideways consolidation
And with the financial sector as a whole showing some signs of stability, I’m hopeful this stock may even get some top-down headwinds.
Another chart that has just poked to new highs after a lengthy and wide sideways period is Ollie’s Bargain Outlet Holdings (OLLI). The chart just cracked the $100 mark and considering the balance of evidence I could imagine this continuing to trend higher.
Speaking of stocks at all-time highs, you might also like the chart of Chemed (CHE), which is knocking on the door of another leg higher. And unlike OLLI, this one isn’t quite as extended. Plus, its knocking on the door of a much longer resistance zone…
Personally, I really do like these new all-time highs as the lack of overhead supply can help bulls stay in the driver’s seat.
But that said, I also trade my share of 52-week and 50-day highs as well. The latter can provide lower-priced entry points which may appeal if you’re more of a value-focused player.
As an example, take a look at the chart of Broadridge Financial Solutions (BR), which is starting to show some momentum after reporting earnings.
With strong fundamental operating results still supporting the underlying business, BR could be ready to take a run at all-time highs if the market cooperates.
Now last but not least, I want to share the chart of ZScaler (ZS), which IPO’d about a year ago and has since been able to build out a fairly impressive weekly chart:
Even though there’s lots of hype and excitement around the current crop of new issues, I prefer to give these IPOs a little time to develop and build up some price history. Then, as is the case with ZS, I can be a little more confident in planning my trades!
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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