January 2020 Trend Following Market Update and Trade Ideas (Part 1):
Welcome to the new decade! The market celebrated with a pop, but then things started to fizzle a little bit Friday’s close. So let’s dig into some of the trends and potential breakouts taking shape right now as the new year begins to unfold.
As usual, I like to start by recapping the major indexes, and then I’ll dive into some individual stock charts I think are worth watching. But the crux of the price action next week will be whether the broad market indexes continue to pause after the holidays, or dip-buyers take control of the tape.
Let me show you what I mean. As aways, the charts are provided by the great folks at TrendSpider.
January 2020 Stock Market Update (Part 1):
As I was saying, 2019 was a strong year for stocks. And the end of the year in particular, finished with something of a bang as the indexes charged higher after US Thanksgiving weekend. But after the clock struck midnight on January 1st, markets started to pause.
Here’s the weekly chart of the SPY ETF to show you what I mean:
The weekly doji candle shows buyers and sellers fighting it out all week without much resolution. And since this indecision is coming after a bit of an uptrend, it’s possible we see a little more of a pullback into next week and maybe beyond.
And while you might also point to growing tensions in the Middle East, I think the technical picture was already presenting an excuse for a sell-off.
After all, it’s not just US large caps that are pausing. The same phenomenon is happening in small caps and emerging market stocks too. First, here’s IWM (the Russell 2000 ETF):
I’m happy to see this group has broken out of its 2019 trading range. But a pause now wouldn’t be out of the picture. It may even lead to a higher low, which would be a constructive development.
The same story applies to emerging markets, – as shown by EEM:
With a new calendar year underway, portfolio managers could be reshuffling the deck and more pullback might be expected. But with rising weekly moving averages, the intermediate trend still appears to be higher.
One other piece of the puzzle might be the action in treasury bonds, which have bounced back after showing some weakness to end 2019.
Here’s the TLT ETF to illustrate:
Given the strength of this most recent weekly candle, I’d expect a little bit more follow-through in the week ahead and perhaps a bit more pressure on stocks. So with that backdrop in mind, let me highlight a few individual stock charts that might be in play if the market perks up again.
January 2020 Stock Charts to Watch – Part 1:
I usually like to focus on diving deep on one specific stock, looking at both the technical and fundamental trends. But since the market is pausing a little bit, and the page has just turned on a new decade, I want to point out a couple different names that might get moving on the next leg of momentum.
After all, we’re still in a bull market so as some sectors and industries pull back, others are likely waiting for the next leg higher. Let’s see if we can find some of them.
First up is a momentum favourite, NOW, which has marked time going sideways a little bit near recent highs. I like the way this stock was bought up towards the end of the week and optimistic it can continue coasting.
Another old favourite of mine that’s looking interesting again is TEAM. You could buy the dip on a pullback, or wait for more follow-through next week.
A different approach to finding rotation candidates is to find old momentum stocks that have fallen down significantly, but are now showing signs of life. Shotspotter (SSTI) is a great example of this right now:
This former growth stock has shown in the past that it has the ability to trend (both up, and down!). So I’m curious if it can get moving again and would look to buy a breakout on more strength.
Finally, I also want to point out a 50-day high in Deckers Outdoor (DECK). While the stock is still below all-time highs, it does appear to be breaking out of a range and I like the strong weekly close we saw:
Alright, I hope that gives you some trade ideas for the week ahead. As a reminder, I always like to use a trailing stop based on ATR, (usually 2x the weekly value) to give my ideas some wiggle room. But you should of course adjust for your own preferences and timeframes.
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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