Free Trend Following Trade Ideas For October 2018 (Part 2):

Well, that was quite the week! And the good news is, you survived. So in this week’s edition of weekly stock picks I’m going to recap this week’s stock market trading action for you; and then, share some potential stock ideas and plans for the week ahead.

Plus…

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Alright, now let’s get  to it. Before diving into specific stock charts, I want to quickly take a step back and look at the big picture. Because it’s been a pretty dynamic week in the market so I think this context is important.

First things first…

October 2018 Stock Market Overview and Analysis:

In last week’s analysis, I made the point that calendar milestones can often coincide with stock market inflection points.

And heading into October, (and the last trading quarter of the year) that seems to be exactly what happened.

Because after stock market index prices glided higher over the summer, the start of autumn has marked a cooling off in market prices. So…

This week was another very good reminder to always have a well-defined plan, set in advance, for when to sell your stocks! At least that way, it’s easier to roll with the market punches.

And speaking of punches, let’s start off the big picture with a weekly chart of SPY. From this view, you can see that although we’ve pulled back, prices are still above their January highs.

Free Trend Following Trade Ideas For October 2018 (Part 2) SPY

So even though the decline this week feels extreme, in the broader context, it’s really not so bad (yet). On the other hand, there were some momentum stocks that were hit hard.

And…

When you zoom into the daily time-frame on the SPY chart, you can see price is starting to under-cut the prior lows. Now bulls did muster a bit of a bounce into the end of the day, but it does feel like a change of character in the tape.

Free Trend Following Trade Ideas For October 2018 (Part 2) SPY daily

The other thing that stands out here is not only did the main indexes finish lower but, there were a few signs of downside momentum starting to pick up. For instance:

  • Small cap stocks closed near the lows of the week
  • Facebook closed near the lows of the week (and near 52-week lows)
  • Bonds closed near the lows of the week (and near 52-week lows)
  • Emerging markets, already in a vicious downtrend, closed near new 52-week lows.

So in a lot of ways, bears are starting to gain some momentum; or at least, bulls need to get moving soon if we want to see more follow-through.

I’ve given back a lot of open profits this week and while there are a couple of areas (like industrials) setting up under the surface, we might need a bit more time to recover.

It also depends on your time frame.

Your Timeframe Informs Your Action:

With the market acting weak right now, there’s a big temptation to sell everything and hide in cash. But depending on your timeframe this might not be the optimal approach. I mean sure…

If you have a small portfolio, you’re an active swing trader, and your commission plan is low, you might be nimble enough to navigate around the current turbulence. But you still run the risk of selling out at the bottom, only to buy-in again at higher prices.

As for me…

Since I’m a longer-term trend follower, my plan has me mostly sitting on my hands until my stops are hit. The good news is, we did have a big strong bull run in the preceding months, so most of my positions are just giving back open profits (rather than principle). And given the long-term uptrend we’ve seen over the last few years, I’m still inclined to give bulls the benefit of the doubt.

Looking ahead, I’ll be hoping for a bounce soon, or at least a pause. I’ll also be curious to see how Q3 earning start rolling in over the next few weeks. This may give us the next clue as to whether leading stocks can keep trending, or if this pullback is the start of something more material.

In the meantime, I’m sticking to pockets of strength and new potential breakouts that are consolidating near highs with relative strength. Let me show you what this looks like…

Free Trend Following Trade Ideas For October 2018 (Part 2):

Okay, in a choppy market environment, it can still be worth hunting breakouts. While there may not be as much follow-through, it’s at least good to have a strong watch list, so you’re ready, should momentum come back into the market.

In these cases, one of my favourite things to look for are range contractions (decreasing volatility) in stocks near highs. A good example of this right now is the railroad, CSX Corp (CSX)…

Free Trend Following Trade Ideas For October 2018 (Part 2) CSX

In my experience, it’s a good sign when buyers can keep the stock price so steady in an otherwise shaky market. So if CSX manages to get going again, I think it could have another leg higher.

Another approach to finding breakouts in this market environment is to find the few strong industries and jump on them. And right now, one of those industries appears to be big pharma.

So while LLY exploded higher this week, I like the way Pfizer (PFE) is trending up:

Free Trend Following Trade Ideas For October 2018 (Part 2) PFE

I think as long you as manage risk, these uptrends are quite actionable and with any luck will lead to relative quick profits. That’s also my thinking behind CME Group (CME), of which I picked up some shares this week after the pop.

Here’s the weekly chart so you can see for yourself:

Free Trend Following Trade Ideas For October 2018 (Part 2) CME

In a soft tape, I’m always impressed with the tickers that can close the week at their highs. And in the case of CME, it’s all the better because this happened after a long consolidation.

Now lastly…

If buying new highs makes you feel squeamish… well, I encourage you to give it a try anyways! But seriously, I also appreciate this can be a good time to find dip-buying opportunities that present appealing risk/reward.

So one that has my eye this week is Tabula Rasa Healthcare (TRHC), which has been pulling back in the context of a larger uptrend. While I usually trade from the weekly timeframes, sometimes these dip-buying ideas are easier to manage from a daily view.

Free Trend Following Trade Ideas For October 2018 (Part 2) TRHC

I like the way this one has already started to bounce, even though Friday’s market was weak. So on any follow-through here could be encouraging (especially since it already has strong price-momentum year-to-date).

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 listTake 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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