Free Trend Following Trade Ideas For October 2018 (Part 3):
Well, this hasn’t been much of a month for breakout stock picks! Because as I’m sure you know, after a soft start, things really rolled over this week. So even though I’d been raising cash, I still had meaningful exposure to this quick drop in the indexes.
Now, let’s recap this action. And then I’ll show you how I’m preparing for the upcoming trading week ahead, including some potential charts to keep an eye on.
Alright, considering the broad scale selling this week I think it only makes sense to start with the big picture. After that, we can decide whether it’s worth drilling down into individual ideas.
So first things first…
October 2018 Big Picture Stock Market Analysis:
With CNBC running a “Markets in Turmoil” segment, I probably don’t have to tell you that stock markets are running into some turbulence here. But the interesting thing is both the breadth of the selling this week, and the speed of it. Because although individual breakouts were starting to fail, there wasn’t a ton of warning.
The daily SPY chart illustrates this drastic drop pretty well:
And it wasn’t just the large-cap names of the S&P-500. The tech-heavy Nasdaq took a beating, and small cap stocks finished their week near the lows too. It was a tough week for stock market bulls.
But it gets worse. because when you zoom out to the weekly chart, you can see that the index ETF is now well-below the prior January highs. And judging by the RSI pane, bullish momentum has left the building…
I guess the saving grace here is that buyers did show up at the end of the week to defend the long-term uptrend. But not before sellers made a major dent. So I think it’s certainly possible we still retest the lows in the next few weeks.
By the way…
This is also a good reminder to always have an exit strategy! Because truly anything can happen in the stock market, and you always need to be ready. Seriously.
So where do we go from here? Well, that’s the big question. And nobody knows for sure. So I think it’s best to be open minded. Because the good news is, you don’t need to predict the stock market to make money.
Personally though, I’m not all that optimistic. Because not only did US stocks really get a dent in the trend, global markets still look tepid as well. You see…
Prior to this week, US stocks were one of the only stock markets around the world that was higher for the year. Emerging markets have been a complete mess, and Europe is now breaking down too.
So when I see this weekly chart of the All-Country World Index ETF, it’s hard to get too excited:
Because as you can see, global stocks appear to be trapped in a year-to-date trading range. And when you drill down into the individual indexes, it’s hard to get excited about the price action of the components. So they might be trapped here for a little while.
And even though EEM did put in an impressive bounce Friday, it still has a lot of work to do before getting constructive from a trend perspective. So for the week ahead – outside of a few narrow opportunities – I’m mostly planning to take a wait and see approach.
When prices get volatile, (as they are now), the bid and the ask move so quickly and, it’s easy to make trading mistakes.
So personally, I prefer to sit and wait for a little more clarity, given my longer-time frame. This might mean I miss out on a bounce, but I’m not even convinced the first bounce will stick. Remember…
As individual traders and investors we don’t have to swing at every pitch. So I’m likely to keep executing any stops, start looking for short entries, and pick my spots on the long-side carefully.
On that note, and with this very important top-down context in mind, let’s take a look at some individual stock and ETF charts…
Trend Following Stock Charts To Watch For October 2018:
With the market well below all time highs, we’re going to have deal with overhead support again. This is in stark contrast to the easy coast higher we’ve seen the last few months.
But these new top down headwinds mean trends are less likely to run, and breakouts may be less likely to reverse. So…
While there are still some leading parts of the market to focus on, it may be even more fruitful to keep an eye out for trading ranges and areas of resistance.
With that in mind, the first chart I want to show you is Canopy Growth Corporation (CGC). Because despite the weakness in growth stocks this week, the cannabis complex held up pretty well.
And with one of the largest players in the space at the front of the pack I’m curious to see if CGC can keep running. All things considered, I think the chart is one of the best out there right now:
Of course, the big news in the week ahead is recreational legalization in Canada on Wednesday. So my main concern (in addition to a soft market overall) is that this will be a “sell-the-news” event. But for now the chart looks strong.
Another reasonably good looking chart – though on a lower-priced and more speculative idea is – BioDelivery Sciences International (BDSI).
As you can see, it’s really outperformed this week:
My biggest concern here is that it’s a small-cap trade idea, which is a group that’s getting hit hard as of late. Plus, the company doesn’t have quite as great of a fundamental track record as I usually like to see.
The next idea on my radar is a dip-buying play in Marcus Corp (MCS). I recently picked up shares of this one, and despite being underwater, I’m optimistic it can keep bouncing if we see a broad market rally:
That said, I am keeping positions smaller than usual these days because of the broad market uncertainty. It’s also because of this that I’m also looking beyond stocks for pockets of momentum.
And while bonds are bumping around, and oil starts to fade, I think it’s the yellow metal, Gold, that’s looking like it might have time to shine. Here’s one of the popular Gold ETFs (GLD):
Now usually, I do like to look for more established trends. But quick turning points at the end of trends can also be good opportunities from a risk/reward perspective.
And given all the other changes in trend we’ve seen across equity and bond markets, this might be worth a shot. If the price tag is a little too high here, I think GDX and GDXJ might offer a similar opportunity.
But just keep in mind some of those products (especially the leveraged and inverse ones) aren’t meant for long-term holds.
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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