MARKET UPDATE #154
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 ,
the stock market went almost vertical in the last 4 weeks! The next week will be very interesting: Will we see a reversal or a consolidation? Are the indices able to break out of the mid term channel? I personally reduced my exposure in extended stocks and also in stocks which will publish earnings next week. Observing the indices and leading stocks will be my number one task next week.
Here is what you will find in this newsletter:
- Questions and answers from the subscribers forum
- Comment on the current market situation: 3 scenarios for the next move
- Stocks I am watching at the moment: $FANG, $CPE, $CCJ.
- Trading tips: Adapt to the speed of the market
If you have questions, please use the subscribers forum.
Thank you and good trading,
Julian
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MARKET CONDITIONS
3 scenarios for the next move
The scenario I created last week happened. I was a little bit more conservative as the market. I expected a short 2-3 day consolidation around the all-time high, but that did not happened. The market followed through immediately.
I don't like exhaustion markets like we see now! They are great to make good money in a short period of time, but I like steady smooth trends because I am able to hold positions for a longer time. As a trader you have to adapt to the market situation and if the market goes vertical, all the buying power is spent in a short period of time. Who is left to buy and push the priced higher?
The next week will be very exciting and will give us clues about the next upmove. I have the following scenarios in my mind:
1) Sharp pullback to the EMA 21 or re-test of previous all-time high. That would signal weakness and a breakout above the channel would be unlikely.
2) Sideways consolidation or little flag around the highs for 1-3 weeks. That would signal strength and a breakout above the channel would be likely.
3) Slow downtrend or slow uptrend close to the upper channel resistance. That would signal weakness and a larger pullback would be likely.
I prepare myself for all three scenarios. The probabilities for a direct followthrough and another 5-10% upmove are low. That's why I reduced exposure. I personally expect a pullback or consolidation. BUT: I will change my mind immediately when I get new information and I still have enough long exposure to benefit from another upmove.
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NASDAQ composite: There is a little chance that we will break out of the channel to the upside. We now tested the upper channel multiple times. The problem: Last week we saw some exhaustion runs in leading, large cap stocks. When they pull back or consolidate, the NASDAQ will consolidate too. That's why I think that there is a higher probability of a consolidation or correction. |
3 LEADING STOCKS
This week I have 38 stocks on my watchlist, 11 (!) more as last week. I added some stocks of the commodity sector to monitor them.
Would you like to learn how to find stocks like below? Look into my video course Growth Traders Toolbox. |
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$FANG: I am not an expert on oil stocks. But if oil moves, oil stocks will move too and they sometimes provide a better risk-reward-ratio than trading the commodity itself.
$FANG looks pretty good. There are stronger oil stocks available, but they all not provide a good risk-reward-ratio. $FANG consolidates closely to the 52 week high and the volume is drying up too. In addition the fundamentals are strong, too. But cyclicals / commodity stocks usually top when the fundamentals are the best.
Sales growth in the last 3 quarters: 32%, 296%, 165%. EPS growth in the last 3 quarters: 59%, >999%, 374%. EPS estimates: 252% for 2021 and 56% for 2022.
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$CPE: Another oil stock with a very nice pattern. The volume is mixed, but the stock is much more aggressive and volatile as $FANG (above).
Sales growth in the last 3 quarters: 24%, 180%, 91%. EPS growth in the last 3 quarters: 24%, >999%, 358%. EPS estimates: 198% for 2021 and 53% for 2022.
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$CCJ: There are stronger Uranium stocks out there, but this is the most liquid and institutional quality stock. I prefer such names over too aggressive small or micro caps.
Uranium or nuclear energy is one possible solutions to decrease the pollution in the world. It doesn't matter what I personally think about the technology, the market seems to believe in a higher demand. Uranium prices are in an uptrend too.
No positive quarterly sales, EPS. Positive EPS estimate for 2022.
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TRADING TIPS
Adapt to the speed of the market
A famous hedge fund manager said once that trading is like a 360 degree chess game. For me that means there are so many variables in the game you have to consider. The only solution to that problem is to adapt to the market and situation.
You cannot trade a stock market, which is going vertical, the same way as you trade a market which is in a smooth and steady uptrend. When the stock market goes vertical, you have to react faster and also reduce your exposure into the strength. Otherwise you will sit in a deep draw down.
Here is an example: |
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1) Blow off: Take profits quickly and into the strength. It is very likely that the market will correct sharply.
2) Volatile, but steady trend: Hold your positions and accept higher volatility or reduce position size. Avoid changing stocks too often because there are a lot of failed breakouts.
3) Smooth and steady uptrend: Hold your stocks and let profits run. Easy money environment.
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