Friday November 2nd, Daily Trend Letter

Happy Friday! What a week it’s been, and it’s not quite over yet! So let’s dig into the price action of the last few days and take a look at what we might be in for at the opening bell.

So here’s what I’m seeing heading into the weekend…

Weekly Stock Market Recap and Outlook:

After a bumpy start, bulls have battled back and managed to make another day of solid progress. From small caps to tech stocks to emerging markets, we saw a broad bounce with wide participation.

In fact, the only asset that took a dive was the US Dollar! And if the mighty dollar continues to weaken this morning (whether because of Brexit progress or any other excuses) we could see more follow-through as this trend tempers. It might also help explain the exuberant bounce in emerging markets we saw yesterday.

So given the Dow has rallied over 900 points the last few days, and with futures shaking off a negative reaction to AAPL results, the question on everyone’s mind is whether this bounce can continue.

Has This Market Correction Run It’s Course?

Even though I’ve added a few longs to my portfolio this week, I haven’t been as overtly bullish as you might expect. The reason for this is not because of where we are, but where we’ve come from.

More specifically, stocks as a group were quite oversold coming out of October. But they are now racing straight into overhead supply, which may present headwinds.

Leading the pack are tech stocks, which as a group have now recaptured their 200-day MA. And the QQQ daily chart may be attempting to put in a higher high:

So keep in mind anything here is possible, and we could even see a rally up to the declining 50-day (which would still translate to a lower high on the weekly chart). And at the same time…

SPY is making reasonable progress too, and while not quite at the 200-day MA, it’s getting very close:

But as the data in one of the further reading articles suggests, a retest of the current lows has happened 50% of the time when we’ve seen this degree of pullback. So while I’m encouraged by positive China-US trade headlines and this morning’s strong jobs number. But personally, my first area of focus is always on protecting capital, so I like to err on the side of caution in these cases and redeploy cash carefully.

So all that to say, it may take a few days for the next building blocks of trend to take shape. But I’m willing to be patient as we watch if price rolls over as it runs into support, or bases out and continues higher. I’m open-minded to either scenario and with lots of dry powder I feel well-positioned for whatever happens next. IWhere we close today on the weekly charts will be another piece of important evidence, so stay tuned.

And in the meantime, I’m continuing to stick to my trading plan. Speaking of…

Trade Alert:

Sell EC (Personal Holdings):

Despite the best intentions, some trades just don’t work out. And EC is but the most recent example. Because shortly after pulling the trigger on this one the market as a whole reversed. And even though we’ve seen a broad bounce the last few days, EC simply didn’t participate.

So rather than sit around hoping, waiting and wishing, I’m happy to book the loss before it gets any bigger and move on to more promising opportunities. And even though the percentage loss is a little high, this was a very small position so the capital loss is only 0.05% of my account…

  • Entry price: $26.01
  • Exit price: $ (vs. $23.05 stop)
  • P&L: -16%
  • Trading system: S1

Sell UVE (Personal Holdings):

In contrast to the trade prior, UVE was a classic trend following success. But like all good things, trends eventually come to an end. So after a violent weekly chart reversal I’m happy to book this one and move on. If it does recover, consolidate and keep trending higher again I’m always happy to jump back on the trend.

Right now though, hanging around in this stock seems like a low-probability play, so I’m keen to take my profits and move to the sidelines…

  • Entry price: $31.20
  • Target exit price: $41.85 (vs. $44.29 stop)
  • P&L: 38%
  • Trading system: S1

Buy DG (Personal Holdings and Model Portfolio):

Now with the market acting well, I’m happy to keep taking entry signals. And the stock I settled on today was DG, which made it to the top of my S1 screening this morning (as I already own many of the other names that came up!) So plain and simple, I like the way DG has broken out of the recent consolidation and I’m optimistic it can keep running with the chart back at new highs.

Here are the details on how I’m planning I manage this trade.

  • Target entry price: $113.18
  • Stop loss: $103.74 ($9.44 below entry)
  • # of shares: 30
  • Risk: $283.20 (0.3%)
  • Trading system: S1

Now if that trade idea doesn’t tickle your fancy, fear not. Here are a few other charts that are perking up into the final trading day of the week.

Friday’s Charts to Watch:

BAND continues to hold up well with the stock near all-time highs. If this can finish the week on a positive note I’d be curious to add to my position, as it’s definitely one of the most resilient looking charts out there.   

CME is another holding that’s been able to hold up well during the recent correction. With the stock inching back up to new highs I’m optimistic it can keep trending, especially if the market has bottomed for now.

KORS isn’t really my style of chart, but for those of you who like to buy dips and trade ranges, this might be worth watching today. It’s caught a few upgrades from analysts and looks like a short-term bottom might be in.

WTW is a short idea to watch if the market tarts to roll over again. The company missed earnings and is down big in the premarket. Based on how much this one trended higher, I think this could be the beginning of a new downtrend.

Alright, to help you ease into the weekend here are some intriguing ideas for you to ponder over your cup of coffee…

Further Reading:

“Put another way, the trend following strategy primarily adds value by avoiding the large drawdowns that come from a bear market. In the charts above, note how the large falls in 1981, 1987, 1990, 2000-02 and 2007-08 were all side-stepped. These are precisely the types of events that far too many investors spend everyday obsessing over.” What Today’s Trend Following Sell Signal Implies

“Stocks are anticipatory. It’s nice to hear from a company about what’s gone on during the previous 90-day reporting period, but what investors today are buying (or selling) is the outlook going forward.” Earnings Learnings

“Top traders can become one with the market and accurately sense what it is doing. They have the ability to live in the present moment without being influenced by the past or the future. ” 5 Qualities of Top Traders

“Short experienced a number of personal tragedies in his life, yet comes off as one of the happier humans you’ll ever read about. He credits this system of gratitude and balance with keeping his head in the right place even when things weren’t going well.” Martin Short’s 9 Categories For Self Evaluation

Alright, that’s it for now! Let’s see how things shake out at the close and I’ll be back at the same time Monday with another update for you.

For more commentary and ideas throughout the day, you can find me on StockTwits and Twitter sharing ideas. Any questions or ideas of your own? You can shoot me an email or comment below. Happy trading!

More resources:

Thursday November 1st, Daily Trend Letter

 

 

 

 

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Wednesday October 31st, Daily Trend Letter

 

 

 

 

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Tuesday October 30th, Daily Trend Letter

 

 

 

 

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October 29th 2018, Daily Trend Letter

 

 

 

 

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