Weekly Trend Following Market Update and Ideas (Part 3):

It’s a busy weekend for me and the family. So I’ll need to keep this update shorter than usual given all our running around. But the good news is, it was another strong week for stock market bulls.

Earnings season is behind us, and stocks continue to trend higher into the end of the year. So in this abbreviated weekend update I want to show you some of the key trends that are standing out to me and idea that might be worth a closer look.

Plus…

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To get started, I want to circle back to the weekly chart of SPY. It summarizes the big picture quite well.

Nov 2019 Weekly Market Update (Part 3):

2018 and 2019 were challenging times for long-term trend followers. It’s not that the drawdowns were too big; rather, there were many false starts as the market flopped around in a trading range. But all that appears to be ending as we close out 2019.

To show you what I mean, here’s the weekly view of the S&P-500 SPY ETF. As usual, all charts in this post are provided by the great folks from TrendSpider:

Weekly Trend Following Market Update and Ideas (Part 3) SPY

It’s hard for me to be bearish when the most widely watched US stock index is hitting new highs with no overhead resistance in sight. And yes, I realize US-large caps aren’t the only part of the market. But they are an important component and this kind of follow-through from October’s breakout is encouraging.

As you might expect, the leading tech stocks of the Nasdaq 100 have a similar look and feel. And perhaps most encouraging of all the All-Country World Index, one of my favourite market barometers, is moving higher in lockstep too.

Weekly Trend Following Market Update and Ideas (Part 3) ACWI

Looking into next week, if we do see a market pause I’ll be curious to see where that money rotates. For instance, will treasuries catch a bid again?

Or will small caps stocks finally break through resistance and join the new-high club. As a reminder, here’s what IWM (an ETF for the Russell 2000), looks like after Friday’s close:

Weekly Trend Following Market Update and Ideas (Part 3) IWM

Even though IWM has lagged, it’s still near 52-week highs and a higher high might be the final nail in the coffin for bears right now.

So with the momentum firmly to the upside right now, I want to share one individual trade idea that has my eye.

November 2019 Trend Following Trade Idea:

With the market closing the week on such a strong note, there are a ton of stocks showing up on my trend following scans. This in itself is a good sign. And truthfully, there are lots of good ideas out there right now.

But let me show you one of my favourites this week.

Now you might rightly critique me for picking an obvious idea, and yet Alphabet (GOOGL) is acting very well. As you can see below, it’s broken out of a 15-month resistance line (time annotation on drawings is another great TrendSpider feature).

Weekly Trend Following Market Update and Ideas (Part 3) GOOGL

I’d be happy to pick up shares at this new weekly closing high. On a trade like this I like to keep the position under 1% of my total capital, and in this case would put a stop about $122 below my entry price.

I know GOOGL is an obvious stock pick. But I think it’s worth recapping the strong fundamentals underlying the long-term technical breakout. To do this, all we have to do is take a quick look at the financial trends over time.

Lucky for us, the good folks at Morningstar make this data available free. Consider:

Weekly Trend Following Market Update and Ideas (Part 3) Financials

Even though you probably use Google every day to make your life easier and better, you might not appreciate just how valuable this is worth. But the chart above makes it clear.

  • Revenue has exploded higher over time. The other things I like about this trend are the consistent gains. Sales have ticked higher year after year, which has offset some margin pressures.
  • Operating Cash Flow is also growing lock-step with revenue, showing that this higher top-line is turning into bottom-line profits.
  • To be fair, Shares Outstanding has grown slightly (largely due to stock-based compensation). But at the rate GOOGL is growing earnings, this probably isn’t an immediate concern, just something to catch an eye on.

Now you could also argue shares of GOOGL are a little pricey. and regulatory concerns loom. I think these are valid considerations but on balance they’re outweighed by the bullish arguments.

Another lens we can take look at the fundamentals would be to take a look at the key operating metrics of the business. Again, Morningstar makes this easy.

Weekly Trend Following Market Update and Ideas (Part 3) Morningstar

As a caveat, these ratios are a one-time snapshot. So it can make sense to monitor them over time or get a longitudinal view from someone like YCharts. But for now…

The growth numbers look good, and the return on equity and assets are fairly strong, especially considering the size of the business. Finally, the low debt-equity ratio implies a clean balance sheet, indicating lots of room for manoeuvre.

So when you combine all this with the technical blue sky uptrend, I think GOOGL might be worth more consideration and due diligence.

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.

Learn How to Scan For Breakout Stock Picks:

If you want to learn more about how I find these kind of stock picks, I encourage you to check out my Breakout Stock Blueprint. What’s that, you ask?

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.

 

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