Talk about another week of drama in the market! At least this time the excitement was to the upside, right? Because after a rough start to February 2018, this week we saw the major market averages bounce back ferociously.
Of course, the question now is: where do we go from here?
So in this short weekend market update, I’m going to share some of the trades I’ve made this past week, as well as how I’m preparing for the upcoming four-day trading week.
Now before we get into this week’s new trade ideas, let’s recap the big picture of the market action so far to help get oriented and set the stage for next week’s ideas.
Feb 2018 Market Recap and Analysis:
Heading into this past trading week, bulls definitely needed to make their presence known in order to avoid major technical damage to the long-term trend. Luckily, they showed up just when it was needed:
As you can see, this week saw a strong and sustained bounce that helped confirm the long-term bullish trend remains.
Of course, anything could happen when markets open again next week. But this is a promising development.
It’s also encouraging to see the relative strength (top pane in the chart above) which shows how the recent sell-off also helped work off overbought conditions.
… So in the long-run this little reset could help the sustainability of the ongoing bull market.
Another factor worth mentioning is the slight decline in volatility this week. While we did still see some big moves in the indexes, the intraday ranges and reversals were still muted compared to the last 2 weeks.
This could indicate an increasing consensus between buyers and sellers, which might portend a little more market stability going forward.
Meanwhile, earnings season continues to roll on with many companies continuing to beat expectations – more fuel for the uptrend if you ask me.
All that said, there are many stocks that are still looking weak, while others continue to charge to new highs. So as a trend following trader my goal is to ignore the former and get long the latter.
By focusing on the strongest stocks, we can hope to continue riding these uptrends for many more months to come.
Now naturally, nothing is guaranteed in markets. So it’s important to manage risk and have aplan for when to sell along the way.
With that in mind, let’s look at some potential new trade ideas for the week ahead…
Trend Following Trade Ideas For February 2018 (Part 3):
When recovering from a market correction, there are a couple different ways to look for opportunity. We can elect to buy the dip, or simply look for those stocks that are leading us to new highs.
Personally, I think either of these approaches can work, especially when combined with a long-term technical uptrend like we have now.
So to start us off this week, let’s take a look at some material stocks that are doing well (and may continue to act bullish given the inflation backdrop).
First is the international mining giant Vale (VALE). After consolidating the last couple of weeks, you can see in the weekly chart below that VALE is pushing to new 52-week highs:
One of the things I like about this chart is that it isn’t too extended. In fact, VALE actually has quite an orderly look about it. And this reduced volatility can help with an appealing risk/reward setup.
Along similar lines, the chart of steel maker Ternium SA (TX) also has my eye. In fact, I actually picked up some shares of TX Friday morning.
So here’s how I’m playing it:
Given the top-down strength in the commodity and steel spaces, I’m cautiously optimistic TX can keep trending after breaking out from this recent consolidation.
Now if mineral, mining and commodity stocks aren’t your things, don’t worry. I have a couple other ideas to share from unrelated market sectors.
One area of the market that really took a hit the last few weeks was the retail sector (you can look up the chart of XRT to get a better idea of the sector as a whole). But many underlying companies like NKE and LULU (long both) have similar charts and are bouncing back strongly.
Today though, it’s Urban Outfitters (URBN) that really has my eye. That’s because while the chart has been in a trading range it does remain near 52-week highs. And I’d be curious to play another leg of the uptrend if it can make a new closing daily high above this range.
In the case of URBN though, given the somewhat choppy nature of the chart, I’d be more inclined to wait for confirmation of a breakout rather than anticipate one here.
But if retail stocks aren’t your thing, consider large cap tech stocks, which continues to look good despite Facebook slowing down a little bit.
Amazon (AMZN) and Netflix (NFLX) continue to trade strongly here. And I think the latter could keep running. See the chart below to see the bullish price action for yourself:
Not bad, right? It always amazes me how these large cap stocks can give you great ideas, hiding in plain sight.
NFLX is hardly an under-the-radar stock. But that doesn’t mean it can’t make big returns.
Another tech stock I’m feeling bullish on again is the ecommerce company Shopify (SHOP). While I’ve been trading the Toronto-listed shares of Shopify (SHOP.TO), the US shares have an analogous set-up:
For those of you that are new here, I had a great SHOP trade in 2016-2017. Since then, the stock hasn’t done much for the last few quarters. But now with earnings out of the way and the stock moving to new highs out of a lengthy consolidation, I think this one is worth a closer look. Don’t you?
Now just before we finish…
… I also wanted 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.
I hope this helps give you more context on how I’m seeing the current market, AND, where I’m allocating capital.
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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