January 2020 Trend-Following Market Update:
You did it! The first full trading week of the year is behind us. And hopefully you haven’t given up on your resolutions yet either.
So overall, it was a strong week in the market. But with Friday’s soft close, it’s fair to ask: is the New Year’s Eve hangover starting to kick in? We’ll have to keep watching next week to be sure, but in the charts below I’ll show you why the momentum might be set to continue.
Now let’s get down to it. First I’ll start with the big picture of the market indexes before updating you on a recent buy of mine, with some insight into why I bought it. So let’s go.
January 2020 Stock Index Update (Part 2):
As I was saying, despite all the headline news coming out of the Middle East, the market shrugged it off and continued to coast higher to start the year. Here’s the SPY weekly chart ETF as an example:
And while we’re talking about US large caps, I think it makes sense to take a closer look at the Nasdaq 100 more specifically. As you can see below, tech stocks put up a very strong performance:
And because of the way market-cap based indexing works, this momentum might continue because some of the biggest constituents of the tech index are breaking out in a big way.
Consider: FB just made its highest weekly close ever. After years of scandals and sideways stock movement, the price is finally breaking out of a massive range:
And the thing is, FB isn’t alone. Just look at GOOGL, which also had an incredibly bullish week:
Beyond the large-cap names, a lot of high-growth SAAS names are starting to act strong again too, after resetting last quarter. So it’ll be interesting to see if Friday’s reversal was just a little bit of profit taking after an ebullient start, or more of a reset after SPY’s extended run the last quarter of 2019.
As a trend follower, my strategy is just to try and hop on for a ride and manage risk, rather than try to predict when this melt-up ends. One way I like to do this is by looking for stocks near highs that aren’t too extended in the short-term.
I’ll show you one of those in a minute.
But first, I also want to point out that if US stocks do pause temporarily, emerging markets could be ready to keep sprinting. EEM appears to be rallying off a trend-reversal and it may have more room to stretch:
With this kind of breath around the world, equities in general may benefit from a tailwind. Now let me show you one I just picked up some shares of.
January 2020 Trend-Following Trade Idea (Part 2):
Friday afternoon at the close, I started a position in PYPL. I’ve owned this stock before, but I liked the way it was moving and am hoping the momentum can continue. And as I was saying above, it’s also not too extended, despite being near highs.
Here’s the weekly chart, courtesy of TrendSpider as usual:
I really like the strong recent weekly candle that resulted in a 50-day high. While it’s not a 52-week high, the stock is still in a long-term uptrend and looks like it might be ready for another leg up after consolidating for a few months.
So in terms of managing this trade, I placed my stop 2 ATR below price, which is around $102.50. I’m hoping it follows through quickly next week so I can start trailing my stop. I always like to have a plan for when to sell, before I buy.
The other cool thing about PYPL right now is the fundamentals also look impressive. Just check out the financials from Morningstar:
The obvious thing that stands out to me is just the explosion in the top line: Growth over the last 6 years is somewhere around 300% – wow!
Just as good, margins have also remained steady with this growth. And given the consistent share count, this has resulted in rising EPS, which the stock price seems to be tracking. With no signs of business slowing down (and anecdotally being a happy PayPal user), I’m keen to try and ride the next leg of this uptrend.
Now, one thing to be aware of is PYPL and most other stocks have earnings coming up in the next few weeks. How you trade through earnings is up to you. but just be aware that these can result in big price gaps and trend changes.
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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Well… it’s a +90-page PDF… packed with everything I know about finding, buying and trading breakout stock picks.
This Blueprint shares the EXACT step-by-step process I use to find and trade stock picks each week (just like the ones above). So…
If you want to see how to find high-potential-momentum stock picks, learn how to let your winners run and be confident about locking in profits, then this Blueprint is for you.