MARKET UPDATE #109
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 ,
this is the last issue of the free newsletter in 2020. It was a fantastic year for all growth traders! While the Russell 2000 Value is up 2,5% for the year, the Russell 2000 Growth shows a profit of 37,4%! The NASDAQ 100 is up 46%! I hope you all had fantastic profits.
Most newbies start their trading careers in bull markets. They are attracted by the outstanding performance of many growth stocks or indices. Most of them will not survive the next correction or bear market. If you started your trading career in 2020, be humble. Such a year with outstanding performance is rare. The most years are much harder, but can be vey profitable too.
Here is what you will find in this newsletter: - Questions and answers from the subscribers forum
- Comment on the current market situation: History repeats: 2018 and 2020?
- Stocks I am watching at the moment: $FLGT, $SPOT, $TENB
- Trading tips: Video: Stocks that have doubled can easily double again
If you have questions, please use the subscribers forum.
Thank you and good trading, Julian
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MARKET CONDITIONS
History repeats: 2018 and 2020?
History repeats itself again and again on the stock exchange. Not every situation is exactly the same, but there are patterns in the stock market that repeat themselves.
In 2017 we had a very strong bull market. After the NASDAQ rallied 40% and showed an exhaustion run, we saw a volatile sideways consolidation for 4 months. After that, a volatile uptrend turned out to be the final uptrend before we saw the serious correction in late 2018.
I see a very similar situation right now. We saw a strong uptrend, a volatile sideways consolidation and in the last weeks new saw some sharp pullbacks. I don't say that we will see exactly the repetition of the situation from 2017 / 2018, but we have to be aware of that.
Volatility is the killer for all trend following trading approaches. You get shaken out of your positions over and over again. I didn't noticed that in the last weeks, but it is a scenario I am aware of.
Especially traders which traded for the first time in the 2020 bull market, never saw any serious volatility or correction. You have to be aware of that. In the 2018 correction, many stocks corrected 40% or more. Some of them never saw a high again. Managing risk and exit your positions when you have a profit is important.
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NASDAQ 100 ($QQQ ETF) in 2017 / 2018: You see the very nice uptrend in 2017, followed by a very volatile consolidation and the final upmove. At the end of 2018 a correction brought the index down by 23%. |
NASDAQ 100 ($QQQ ETF) in 2020: You see a very similar situation. The rally was shorter but much stronger. After an exhaustion run, we saw a very volatile sideways consolidation and now the index broke out to a new all-time high. The pullbacks are very deep which is a sign of high volatility. |
3 LEADING STOCKS
Stocks with multi-week consolidations are very rare at the moment. If you a stock which is not already in an upmove, it's likely that you found a laggard.
This week I have 43 stocks on my watchlist, unchanged to last week.
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$FLGT: This stock caught my attention because of the very nice, long trading base. Currently the stock is a laggard and underperforming the S&P 500. But that can change quickly. The relative strength line (RS line) is very close to the highs.
The company provides genetic tests including COVID-19 tests! Sales are exploding and grew 883% in the last quarter. EPS was up move than 1000%. You never know huch much of this growth is already priced in. But we can monitor price and another breakout would be a sign that investors are expecting more. |
$SPOT: A few issues I highlighted $SPOT and I wrote that I had doubts about the business model of the company. I found a catalyst in the new podcast strategy which maybe is a game change for the company. But it didn't changed the situation for the stock.
$SPOT is still a laggard. Although the chart looks very nice, the strong buying pressure is missing. While other technology stocks are skyrocketing, $SPOT behaves like a typical laggard. One day with monster volume and breakout and no serious follow through. In a super stock, you see exact the opposite behavior.
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$TENB: Cyber security stocks are leading at the moment. $TENB is a new stock. The chart shows a wonderful, multi-year IPO base. That's what I like to see! Institutions had enough time to make a due diligence and put the stock on the list. Then you see the monster breakout above the IPO high! The volume was the highest since the IPO. Institutions take huge positions here.
If I see such a price action, I look at the fundamentals as second step. They give you more clues why institutions are buying into the stock: 8 quarters with sales growth >22%, positive EPS in the last 2 quarters, turning profitable in 2020 and EPS estimate of 117% for 2021. All things I want to see … I think there are other cyber security stocks which have even better fundamentals, but the market cap of those names is also much higher.
$TENB is no ready-to-buy candidate, but I have it on my list and wait for a sound consolidation. |
TRADING TIPS
Video: Stocks that have doubled can easily double again
I often get asked why I buy stocks which are already up 100% or more from their lows. The answer is simple: This is a sign of great demand and often the beginning of a much bigger movie. In this video I want to explain this concept to you.
In this video you learn: – The doubling is often the start of a larger move – Not every stock that doubled, double again – Why institutions are willing to pay so much for a stock – Buying new highs instead pullbacks – Looking for trading bases after the stock doubled – Example stocks: $AAPL, $AMZN, $CDLX, $ENPH, $NVAX, $PLUG, $SHOP, $ZM
If you have questions, please make a comment below the YouTube video and don't forget to subscribe to my channel!
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