MARKET UPDATE #149
Free weekly stock market education service with 3 stock ideas.
Disclaimer: The content is for educational purpose only. No investment advice. Please read the full disclaimer. |
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Hi ,
markets can change very quickly! That's why we always follow the price action, create different scenarios, do our homework and adapt quickly as soon as new information are available.
The stock market decided to correct instead of moving up. Within a few days, many growth stocks returned the gains of the past few months. When I go through my stock, sectors and ETFs lists, I see a lot of damage. On the other side it's the right time to look for relative strength. Stocks which held up during the last week are maybe new potential leaders.
Here is what you will find in this newsletter:
- Questions and answers from the subscribers forum
- Comment on the current market situation: Continuation of the correction?
- Stocks I am watching at the moment: §DDOG, $BILL, $DBC.
- Trading tips: Probabilities and risk first, stocks second
If you have questions, please use the subscribers forum.
Thank you and good trading,
Julian
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QUESTION AND ANSWERS
No new questions or answers this week. You have to register for the forum! If you have an account, you have to login.
Do you have a question for me? Use the free forum. Links are below!
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MARKET CONDITIONS
Continuation of the correction?
The markets decided to correct. The NASDAQ and S&P 500 completed their short-term tops. That's a very bad sign, but it doesn't mean that we will see a mid- or long-term correction. The markets can change very quickly and you have to be prepared for everything.
The growth indices like the ARK Innovation ($ARKK) or IBD 50 ($FFTY) look bad. The ARK Innovation trades below the EMA 200 and broke through an important support level. The IBD 50 had a major reversal and looks bad too. Only the Russell 2000 Growth ($IWO) went sideways.
This is not the time to be a hero! The odds are clearly against trading growth stocks or even stocks at all. This is the time to do homework and wait patiently until the market and stocks show clear signs of a reversal.
I offer a lot of examples, helpful indicators and tactics to interpret the market environment in my video course Growth Traders Toolbox.
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NASDAQ composite: The index found support at the lower trend line. However, the price is below the EMA 21 / 65 and both are turning lower. In addition all other indices are not looking good too. Short-term we are in a clear correction. |
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IBD 50 ($FFTY): The problem with the IBD 50 is the composition. It contains too many "hot" young IPO stocks. They all broke down and dragged the index down. That's why it's important to look into an ETF to understand what they own. However, the sharp sell-off is a clear risk-off signal. It shows a lot of damage and can take several weeks to set up again. |
3 LEADING STOCKS
This week I have 19 stocks on my watchlist, 24 less (!) as last week. I removed a lot of stocks which broke down last week.
Would you like to learn how to find stocks like below? Look into my video course Growth Traders Toolbox. |
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$DDOG: This software stock held up very nicely during the last week. Of course it doesn't mean that it will hold up the next week, but I remained on my watchlist.
The company offers a solution for monitoring, analyzing and automating data center infrastructure. If you are a huge internet or software company, a reliable server infrastructure is very important for you. That's why so many companies are spending a lot of money for software like $DDOG.
Sales growth in the last 3 quarters: 56%, 51%, 67%. EPS growth in the last 3 quarters: 100%, 0%, 80%. EPS estimates for 2021 and 2022: 27% and 43%.
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$BILL: Another software stock holding up nicely. Of course it is not ready to buy, but I can see some relative strength here.
The company offers software to automatize payment and spend management. It's growing very fast.
Sales growth in the last 3 quarters: 38%, 45%, 86%. No positive EPS or EPS estimates.
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$DBC: Commodities in general look very attractive at the moment. Also commodity stocks or commodity related stocks are in a good shape. You have to decide for yourself if you want to trade those stocks or commodities in general. If the stock market will continue to correct, sooner or later commodity stocks will be dragged down too.
$DBC covers a lot of different commodities, but it's highly weighted towards energy. It could be a good vehicle to benefit from rising commodity prices.
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TRADING TIPS
Probabilities and risk first, stocks second
I write a lot about ignoring the indices and focusing on single stocks. That's true when it comes to buying and selling. The indices can't help you to time the entry or exit with a single stock, but they can help you when it comes to timing the general market.
As a stock trader you always have the challenge that 80% of all stocks follow the general market. That means: If the general stock market is in a down trend or sideways trend the probabilities are very low to make money with single stocks! Of course there are always exceptions, but you don't want to trade exceptions, you want to trade easy money. When the probabilities are high to catch a big winner you should trade. The rest of the time you must be defensive or not trade at all.
Indices can also help you when it comes to risk management. Again: 80% of the stocks will follow the general market. When the general markets starts to correct, you must reduce your exposure to the stock market. Otherwise you will suffer deep draw downs, especially when you trade growth stocks. Growth stocks tend to move stronger in both directions as the general stock market. When the NASDAQ is down 2%, a leading growth stock can be down 5% or even 10%. So be careful when the odds are against you!
Making money in the stock market is not a sprint, it is a marathon. Sounds like a cliche but it's true. Short-term orientation is not helpful when it comes to making money. More important is the long-term orientation. 2 or 3 good trends over several weeks per year are enough to make a decent profit. So it's not helpful to trade all the time but waiting for the right time. Consider that in the current market situation.
Want more trading tips? Look into my video course Growth Traders Toolbox. |
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