MARKET UPDATE #157
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 ,
we saw another volatile week in the stock market. One day it looked like that value stocks will outperform, the next day they got sold. I see and feel the uncertainty in the market. Interestingly my portfolio held up very good, but that's no guarantee that it will continue to hold up next week. That's why I prepare myself for every possible scenario!
When leadership narrows and less and less stocks show attractive setups, it's not the time to be a hero. Stock picking is ok, but you need the overall market trend to make money. Even the best stocks will go down if the pressure in the market is too big. Never forget that.
🔥 Save the date: I will have a live-chat with Michael Lamothe next week! We will talk about my trading routine and go through some stocks from my watchlist. Live-stream will be start Dec 2 at 2pm EST. You can watch it on YouTube here: https://www.youtube.com/watch?v=ZoZG1o6S-Ts
Here is what you will find in this newsletter:
- Questions and answers from the subscribers forum
- Comment on the current market situation: Pullback in the broad market
- Stocks I am watching at the moment: $XPEV, $BNTX, $CFLT
- Trading tips: Can you withstand the pullbacks?
If you have questions, please use the subscribers forum.
Thank you and good trading,
Julian
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MARKET CONDITIONS
Pullback in the broad market
The market decided to pull back last week. Especially on Friday we saw big losses on the indices. The reason for that doesn't matter for me. I am only interesting in the price action of the stock market and in the stocks I watch and own.
Until now the NASDAQ, S&P 500 and Russell 2000 had not the power to break out of their consolidations or trend channels successfully. A clear sign for weakness! The growth indices like Russell 2000 Growth, IBD 50 and ARK Innovation are weak too. So the overall market environment weakened dramatically last week and I switch into an observer role now.
When I switch to an observer role it means I am not interested to buy new positions. Instead I observe the market, manage my portfolio position and wait for new signals. I never know what the market will do. It can pull back to the EMA 65 or even EMA 200 or it can reverse on Monday and move higher. Have a plan for every scenario!
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Russel 2000 (daily chart): A clear failed breakout! Don't forget that the index is highly weighted towards financials and even commodity stocks. Oil and financials got hammered last week. But nevertheless the failed breakout is a sign of weakness. |
3 LEADING STOCKS
This week I have 32 stocks on my watchlist, 3 more as last week. I removed some weak stocks and added a new potential themes. But the quality of the setups is very low.
Would you like to learn how to find stocks like below? Look into my video course Growth Traders Toolbox. |
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$XPEV: Electric vehicles stocks held up very nicely last week! $XPEV was one of them. They announced earnings and the reaction was very good. In addition the stock has a lot of institutional support and liquidity. That's surprising for a Chinese stock!
I am careful with Chinese companies recently. There were some cases of fraud and also governmental interventions. That's why I am not sure I want would buy a position here.
Sales growth in the last 3 quarters: 674%, 597%, 203%. No positive EPS or EPS estimates.
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$BNTX: Is the COVID panic back? Some COVID related stocks had a strong reaction last week. I am not sure how much of the COVID situation is already priced in, but I added some COVID stocks back to my watchlist. $BNTX is one of them.
Sales growth in the last 3 quarters: >999%, >999%, >999%. EPS growth in the last 3 quarters: >999%, >999%, >999%. EPS estimated for 2021 and 2022: >999% and -10% (!).
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$CFLT: The company provides an enterprise, ready-to-use version from the popular software Kafka. It's a software which is used in high-performance data applications instead or as addition to databases. I personally think that the way how data is structured with Kafka could replace traditional data bases. That's the theme I see here.
You can see a deep pullback after earnings in the chart. That's normal for very young IPO stocks. Never forget that there are so many people who want to sell: Management, investments banks, venture capital companies, employees … I personally rarely trade such young IPO stocks because of the volatility.
Sales growth in the last 3 quarters: 51%, 64%, 67%. No positive EPS or EPS estimates.
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TRADING TIPS
Can you withstand the pullbacks?
Everybody wants to ride trends in stocks like $TESLA, the most people can't do that. The reason: They sell on the next pullback and be out if the stock continues to move up.
William O'Neil described in detail how to make huge money by riding 1 or 2 super winners in bull market and pyramid aggressively on the way up. If you want to change your financial life in one bull market, do that.
But are you able to withstand a 25-35% pullback if you are on margin with the stock? Giving back 50% or more of your profits to see if the stock sets up again and move higher requires a very strong focus on the stock behavior and not profits. In addition you must be able to accept a very high volatility in your own account.
I personally have problems with that too. That's the reason why I often trade around a core position and increase / decrease the position based on the level of extension or risk I have in the stock. It would be more profitable to hold the stock instead of trade around a core position, but it reduces the draw downs. Another way is to hedge the stock on a pullback or trade a smaller position size.
If you want to make money you have to stick to your big winners and hold them as long as possible, but keep the draw downs under control. This is a field of improvement for me too! That's something I try to get better and better with. |
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