Trend Following Market Update and Ideas (Nov 2019-Pt. 2):

The temperature keeps getting colder but the stock market keeps getting hotter. Because once again, US markets finished the week near highs and the trends are looking bullish.

So in this week’s post I’ll show you what’s moving. And with earnings season mostly out of the way, I also have an interesting ideas that’s just reported strong results.

Plus…

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Now let’s get into the market. As usual, the charts below are provided by the good people from TrendSpider. It’s a newer charting provider, but I really like what they’re building.

Weekly Market Recap – November 2019 Pt 2:

During earnings season, one of the places I like to keep tabs on is FactSet. Their most recent update quickly recaps the key details for how companies are doing this quarter:

  • 89% of S&P-500 companies have reported
  • 75% have beat expectations on earnings-per-share
  • 60% have beat expectations on revenue

So with fundamental performance like this, maybe it’s no surprise stocks are at record highs. At the last, the market seems to like what it’s seeing so far. Here’s a weekly chart of SPY to show you what I mean:

Trend Following Market Update and Ideas - Nov 2019 (Part 2) SPY weekly

So where do we go from here? Well, anything is possible. But zooming into the daily chart (and adding the automated trend lines from TrendSpider), you can see there is a chance we continue coasting higher in this rising channel:

Trend Following Market Update and Ideas - Nov 2019 (Part 2) SPY daily

For now then, it looks like the path of least resistance might still be higher. And with earnings season wrapping up, hopefully this trend can continue for another quarter at least!

Because by the way, it’s not just SPY that’s acting well. The Nasdaq leaders and Russell 2000 small caps are also holding near recent highs. And zooming out even more, the All-Country World Index is another clue I’ve been watching carefully the last few weekly updates.

So I’m happy to report: ACWI is still holding up above the multi-year trading range it broke out of a few weeks ago:

Trend Following Market Update and Ideas - Nov 2019 (Part 2) ACWI

At the same time, another piece of the puzzle is finally coming into place too. That’s because treasury bonds have started to retreat from their recent rally. Take a look at TLT as a proxy, where you can see the air continued to come out of the balloon this week:

Trend Following Market Update and Ideas - Nov 2019 (Part 2) TLT

Traditionally, stocks and bonds often move in opposite directions. So intuitively, it feels like a rotation out of bonds could continue, and thereby act as a tailwind to stocks.

So with this backdrop – and earnings season nearly behind us – I’m happy to share a potential trade idea for the weeks ahead. Because as you’d expect, these ideas are much more likely to succeed when the overall market is moving higher as we’re seeing now. The top down environment matters!

Free Trend Following Trade Idea For November 2019 – Part 2:

One of the things I like about earnings season is you can get an idea of whether or not the fundamental trends are aligning with the technical stock chart trends. And this week’s idea checks that box, with an earnings and revenue beat in the most recent quarter.

I’m talking about Boot Barn Holdings (BOOT). Here’s the weekly chart so you can see what I mean:

Trend Following Market Update and Ideas - Nov 2019 (Part 2) BOOT

Overall, BOOT has been coasting higher for months on end. And this recent weekly close was an all-time high. So with no overhead resistance above, I’m hoping BOOT can keep coasting up. For my style of trend trading, I’d be looking to pick up shares with a trailing stop about $6.86 below entry.

And as I was saying, it’s not just the technical trends that are looking good here.  Below are the key financial metrics over the last few years (provided by Morningstar). As you can see, there are a number of notable and lasting trends too:

Trend Following Market Update and Ideas - Nov 2019 (Part 2) Financials

In particular, I want to point out revenue has continued to trend higher year-after-year. This is one of the strongest trends I like to see when evaluating companies, because a growing top-line can help solve a lot of problems.

The other thing that jumps out at me in the screenshot above is the way margins have improved in the most recent year. To the degree this keeps up, it should help the technical trends keep moving along as well. After all, on the latest earnings call, management mentioned: “e-commerce sales growth accelerated to 7% with bootbarn.com growing double-digits in our e-commerce operating margin outpacing our sales growth”

Now presumably, this ecommerce-driven margin expansion isn’t happening by accident. So to the degree management can keep improving operations by growing online sales a percentage of the total mix, the stock should be able to follow suit.

That said, as with any stocks there are risks. Consider for example how retail stocks in general have been impacted by the trade war narrative. And going forward, this risk could continue to be an overhang for the stock.

Further, if management isn’t able to fend off this margin pressure, earnings could come under pressure again. But on balance, I like my chances with BOOT and will look at trying to ride this trend in the months to come. I encourage you to do your own due diligence, of course.

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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