Jan. 2020 Trend-Following Market Update (Part 3):

Up, up and away! This bull market just keeps running with stocks hitting new highs and not a speck of resistance in sight. It almost feels too easy! So let’s unpack these price trends a little more closely, and then turn our attention to an individual trade idea.


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With phase 1 of a US-China trade deal in the books, it looks like a big piece of uncertainty is out of the way and the market seems to like it. With bulls firmly in control of the tape, let’s recap the action. As usual, the charts below are via TrendSpider.

January 2020 Trend-Following Market Update (Part 3):

What can I say? It’s been a pretty explosive start to the year, with stocks screaming higher the last two weeks. But don’t take my word for it. Below is the weekly chart of the SPY ETF, where you can see we are moving higher with no resistance above:

January 2020 Trend-Following Market Update and Trade Ideas (Part 3) SPY

Looks pretty bullish, doesn’t it? Well, the other neat thing that stands out to me right now is this strong trend isn’t just limited to US stocks. Because while other markets aren’t necessarily at all-time highs, they are still acting quite well.

Consider European stock indexes, as shown by the VGK ETF making 52-week highs.

January 2020 Trend-Following Market Update and Trade Ideas (Part 3) VGK

After a rough 2018, it’s nice to see this group of stocks continuing their 2019 recovery into the new year. I’m pleased by the way VGK was able to close the week at the highs, and it actually looks like it might be ready for another leg higher.

The same dynamic also applies to emerging markets, which as you can see via EEM, are continuing to trend in the right direction after a sideways 2019:

January 2020 Trend-Following Market Update and Trade Ideas (Part 3) EEM

Put together, you can imagine how this all adds up to a bullish environment for equities around the world. And as a matter of fact, just look at the All-Country World Index (ACWI), which continues to trend up after breaking out of a long multi-year trading range:

January 2020 Trend-Following Market Update and Trade Ideas (Part 3) ACWI

So all in all, I think this is a promising picture of momentum. And with any luck, it should continue in the months to come. However, there is one wrinkle to be aware of…

Specifically, the first earnings season of 2020 is just starting to get going. And given the big run-up the last few months, it’s possible that a lot of strong results have already been priced in. If that’s the case, a bit of a pullback is definitely possible if companies’ can’t meet high investor expectations. So stay tuned.

For now though, I’m content to keep looking for ideas on the long side. with 52-week highs all over the place, there are lots of tickers to choose from.

Trend Following Trade Idea For January 2020 (Part 3):

So with markets continuing to trend higher, there’s no shortage of strong stock charts. If anything, the challenge now is looking for ideas that aren’t too extended above their long-term moving averages.

In this case, one idea can be to look for ETF. If you are open to trading ETFs, one potential idea that has my eye is the financial sector, as represented by XLF.

January 2020 Trend-Following Market Update and Trade Ideas (Part 3) XLF

As you might know, this group of stocks has already started to report earnings. And so far the market seems to like what it’s seeing. I think you could wait for a breakout above the current trading range, with a stop just below. The way it’s consolidating near highs looks bullish to me, at least.

Now if you’re looking for an individual stock idea, then I want to point out Estee Lauder (EL). I picked up a few shares myself this week, as the weekly chart breaks out to new highs:

January 2020 Trend-Following Market Update and Trade Ideas (Part 3) EL

I’m hoping this one can keep trending, so my plan for when to sell relies on a 2xATR-based trailing stop about $17 below my entry price.

With consumer stocks moving higher alongside the broad market, I’m hoping the top-down strength can benefit EL too. Beside the technicals, the other thing I like about EL are the fundamentals.

To give you an idea of the underlying operating trends of the business, here’s a look at some of the financial results from Morningstar:

January 2020 Trend-Following Market Update and Trade Ideas (Part 3) EL Financials

The main thing that stands out to me is the consistency. With a few small exceptions, the company has demonstrated consistent revenue growth year-after-year, consistent operating margins around 15% (and higher more recently) – with consistent earnings and cash-flow growth to boot. What’s not to like about that?

So when you combine these fundamental results with the popular brands owned by EL, it appears the company has a sustainable competitive advantage and the operational ability to keep executing their go-to-market strategy. So I’m hoping EL can keep moving up.

That said, it does look like earnings are estimated for early February, so that may be a factor for your trading plan as earnings can make it harder to manage risk. Plan accordingly.

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.

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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