When the Unexpected Happens, Trade!
Stockscores Foundation for the week ending November 19, 2018
In this week's issue:
In This Week’s Issue:
- Stockscores’ Market Minutes Video – Trade with the Force
- Stockscores Trader Training – When the Unexpected Happens, Trade!
- Stock Features of the Week – Abnormal Breaks and Stockscores Simple
Stockscores Market Minutes – Trade with the Force
It is important to understand the dominant force in the market and trade with that on your side. This week, I explain this concept, do my regular weekly market analysis and look at the trade of the week on McDonalds ($MCD)
Click here to watch https://youtu.be/vApgDN_EcGM
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Commentary of the Week – When the Unexpected Happens, Trade!
Some of the best trading opportunities come when the market is surprised by something that is not expected. These surprises can come in a variety of forms, here are some to watch for:
The Wrong Break of a Pattern – if you see an optimistic pattern building but then there is a price move that breaks the optimism, you will often get a strong move in the opposite direction. For example, coming in to Monday’s trading session, the S&P 500 had been building an optimistic ascending triangle on the intraday chart, indicating that the market should move up early this week. Instead, about half an hour after the open, the market moved down and broke the optimism.
That was a signal that those who had been buying in anticipation of strength were caught on the wrong side of the trade. So, in addition to people short selling the market because of the breakdown, you would also have the Bulls who would sell to avoid large losses. The result is the market moved down strong through the morning today.
Bucking the Trend – If the overall market is moving sharply in one direction but an individual stock is moving in the opposite, take notice. It may be that the company has compelling fundamentals that will drive the anti-market trend.
For example, three weeks ago when the overall market was correcting, there were two large cap stocks that I noticed were not succumbing to the selling pressure. Verizon (VZ) and Coca Cola (KO) were both breaking to new highs from predictive chart patterns. Since then, they have been strong performers relative to what the overall market has done.
Breaking the Mood – if you see a stock in that has been in a long, well defined trend but then makes a strong price move with volume that breaks the trend line, take notice. There may be a strong fundamental reason that will reverse the market’s psychology. Since there are so many momentum traders trading with the trend, this break of the trend line could lead to a strong move in the opposite direction as traders scramble to get out of a crowded trade.
For example, the market had a long-term love affair with Amazon (AMZN) and had kept it in a steady upward trend. That up trend was broken early in October and the stock has fallen significantly since. You can also use this approach for the break of downward trends. Natural Gas (UNG) had been the place not to be invested until it broke its downward trend late in September. Since then, it is up more than 50% while most everything has been moving lower.
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This week, I ran the Abnormal Breaks scan in search of Alpha stocks and the Stockscores Simple scan in search of ways to benefit from the weak markets of late. Here are two ideas to consider:
KOOL is trading up with abnormal volume on a day when the market is weak. It is breaking its downward trend line. Pretty speculative given its price but the company has incentive to get its stock back above $1 to retain its Nasdaq listing requirement.
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SQQQ is a good way to benefit from weakness in the US technology stocks as it will go up when that group goes down. If you believe there is more downside in US tech, consider this.
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