Trade the Trend | Episode 1
By Jason McIntosh | Published 6 August 2021
Trade the Trend is a weekly video focusing on where the stock market is going. It’s for investors and traders looking for insights to the market’s next move. Jason uses technical analysis and trend following techniques to help you piece together the world’s biggest puzzle.
Where is the Stock Market Going?
03:29 S&P 500
04:14 Dow Jones Industrial Average
05:51 S&P stocks above 50-day moving average
07:07 Russell 2000
08:18 All Ordinaries
14:30 North Star Resources
15:46 Australian Dollar
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Please note: Charts available from video
Welcome to this week’s edition of “Trade the Trend,” a weekly video discussing where the stock market is going. I’m Jason McIntosh. It is Friday, the 6th August 2021. As always, this is a general commentary and doesn’t take your personal situation into account.
Welcome to this first edition of “Trade with the Trend.” I’m Jason McIntosh, and I’ll be bringing you these videos each week.
Now, they’re going to cover the latest developments in the markets and they’re going to focus on some of the opportunities and trends that I’m seeing.
If you like what you see, well, please hit the like button so that I know you’re getting some useful information and that you’d like me to keep making them. And also, leave me a comment.
Let me know which markets or which stocks you’re interested in, and I might cover them in a future episode. And lastly, if you haven’t subscribed to my YouTube channel, then please hit the subscribe button below this video and you’ll get notified when I release the next video.
Okay. With all that said, let’s get into it. Okay, So I thought we’d start off by having a look at the Nasdaq. So this is really interesting. The big feature on this chart is this congestion zone called a triangle which the market is broken out from.
So let me just draw it here so it’s nice and clear. So there we go there. So you can see the consolidation within this band. So that’s the consolidation or the triangle pattern.
So what typically happens when these patterns break to the upside or the downside for that matter is you get a measured move.
So if we measure the width of that pattern just up through to there and now we take that, and we project that upwards, well, this is the potential of how far this pattern could run.
So that would take the market possibly up to around, you know, around that 16,000 mark and we’re currently here just around 14,900. So that’s possibly what? Around 7% higher from where we currently are.
So that’d be a pretty meaningful move if that happens over the next few months and it really is a classic type of triangle because you can see this little move here.
So you’ve got the breakout here, a bit of a run-up, then you get the return move back to the top of the triangle, and then you get the rally again. And that’s where we are just here.
We’re getting this push up just last night to a new 52-week high and we saw something similar last year, late last year. So let’s just have a look at this little pattern here.
So it’s the same sort of triangle consolidation just in there and there. So yeah, the move within and then we’ve got the breakout, and we got quite a good run from it.
So look, I think the trend is very much in place in the Nasdaq and it’s likely we’re going to see some higher levels over the next…probably the next few months is now looking like the base case for me.
And just on the short-term if I can just blow this up a little bit, make it a little bit larger, yeah, look, just in the short-term, we just got this little…another little triangle in here. That’s just formed over the last couple of weeks and we’ve got that breakout from it.
So look, this market does look like it wants to go higher from here. So look, now let’s go over, let’s jump over to the S&P 500. And look, it’s a very similar story. It’s a market which is in a strong bull market.
We’ve been in this tight range over the last couple of weeks and we’re just breaking up from it now. If we can throw on…let’s just throw on some moving averages.
This is the 50 and 100-day moving averages and you can see every time we’ve come back to somewhere between the 50 and 100, we’re pretty much getting a strong bounce all the way through here up until where we’ve got that sell-off a few weeks back.
Another strong bounce. Looks like the market is ready to take it another step higher. So all signs at the moment say the trend is still up. Let’s jump over to the Dow. Now, the Dow is not quite as impressive when you look at it.
It is clearly in an uptrend still, but the problem we’re seeing in the Dow is it’s been in this sideways consolidation really since… When is that? Since around May and it’s really struggling to make headway.
So what’s been going on is a lot of the gains in the Nasdaq and then filtering into the S&P 500 or in the big market heavyweights like, you know, the Apples, the Microsofts, the Amazons, Facebooks, those big tech giants, they’ve really been leading the way.
And then as you come down through the S&P and into the Dow, it’s less tech-heavy. And so this is sort of like what we’re looking at here. The Dow has been pretty much held by resistance through this band here that’s really been capping the market, providing that overhead resistance.
I think it’s clearly going to give the uptrend the benefit of the doubt and it’s… I think, look, it’s looking like it’s going to break above this resistance band here and that’s going to be a good sign, and that’s going to suggest further gains.
But it does look like it’s the techs which are leading the way. The concern I’ve had over the last, look, the last couple of months has been a lack of breadth in the market, and by that, the market has been led higher by a relatively small number of stocks.
We’ll just quickly jump back to the S&P 500. Let’s just do a comparison. Now, this is going to be the number of S&P 500 stocks above their 50-day moving average.
And we can just see here. So up here, we’ve got the Nasdaq making a series of new 52-week highs, but then down below, the number of stocks that have been holding above their 50-day moving average has been declining.
So currently, it’s 56% of the S&P 500 is above their 50-day moving average and the market is at an all-time high. It’s not really what you’d expect. You’d expect more participation from the rank and file. But it’s those big names which have been leading the charge.
That remains the case and that remains one of the…you know, remains a weak point in the market. It’s the point which makes me cautious. I’m bullish. The trend’s up.
You’ve got to go with the trend, but you’ve got to know where possible risk lies. And this is a…you know, it’s a possible warning flag that things may not be all…you know, as strong as they could be underneath the hood.
And if we’re just sticking with the U.S. for one more moment, we’ll jump over to the Russell 2000. So the Russell 2000, it’s really all the, you know, the small to mid-cap sort of stocks.
So it excludes the top 1,000 stocks in the U.S. market and goes for the next 2,000. And like the Dow, it’s a weaker version of the Dow. So again, you’ve got to really… All this overhead resistance has really been keeping a lead on prices since around February.
But look, I don’t want to get bearish on this market by any stretch here because look, look at all this support that it’s sitting above. If we started to see the market break down below this support here at around 2,100, well, then I’d start getting concerned.
Is it a topping pattern or a continuation pattern? Well, at the moment, I’d have to say, look, this is a continuation pattern, but we really want to see this market start to break to the top side to give confirmation to what we’re seeing in the Nasdaq and the S&P 500.
So for now, yeah, as I keep saying, it’s the big stocks which are very much leading the way. So let’s go local now. Let’s jump down to the All Ords. So this is… Look, it’s again a nice strong market.
What we’ve seen is the market break higher from this. Look, this is probably a two-month, one-and-a-half, two-month consolidation. It’s a small triangle type pattern, congestion zone, and what you often find… So you can see this.
We’ve got a strong move up through here, up through June, then we’ve got the sideways period, and now we’ve got the breakout. So when you get that, you often get what’s called a measured move.
So what we can do, we can measure this move from the start of the move to the top, project it down to the base of the move, and this area up here is the target zone. So look, we’re traveling up towards there now.
It looks like to me that we’re going to see more upside in the All Ordinaries. And another interesting feature, we can draw a price channel on the All Ords. So up through here.
Now, let’s just bring that. Let me just get a little bit of a better fit. Yeah, it looks something like that. So what’s interesting here is that the top of this channel and the sort of the target area from the measured move, they’re kind of coming in around this same sort of point that’s around 7,800, 7,900-ish sort of thing.
So look, I think we can… You know, we got another 100 or so points. We start butting up against resistance. So it could mean the local market starts to pause. Look, it’s one of those tricky times where we’re getting some conflicting signals.
We’ve got the, you know, the big tech indices really breaking upwards and going hard. The Dow was sort of like struggling to make those new highs. The Russell 2000 is really stuck in the mud.
And the All Ords has been doing well, but it is coming up against resistance. So trend’s up. I think we need to expect more upside, but also…look, it’s also worth again being cautious, be selective in the sort of stocks that you’re going for.
And respecting the exit stops when you’ve got stocks which are languishing or pulling back.
Look, it’s worth really considering, do I want them on my portfolio or are they just really just a bit of…you know, a lead weight down in the portfolio which is holding things back and also increasing my risk if the market does have a pullback?
So I know a lot of my members are interested in Gold. So I thought we’d have a quick look at Gold this week. Now, Gold is a really interesting one. It is going to get a longer term chart.
So let’s look at this. This is back… I want to really look from this point where the bull market took off in mid-2018. What I think we’re seeing now is we’re seeing a correction of this entire move.
That’s what all this is about. I think it’s a correction of this big upward move we’ve had. So when you… I think the big picture in Gold is bullish. I think we’re going to see much higher levels over the… Probably over the coming years.
But these things don’t always move in a hurry. They don’t move to my timeframe or yours. They happen when they happen. At the moment, we’re in a consolidation phase or a corrective phase.
So what you can do during a correction is you can look at these retracement levels called Fibonacci correction or Fibonacci levels.
So you can just look them up on YouTube to get some more information, but they’re popular retracement zones which a lot of traders and investors look at.
So if you look at this, it’s… This pullback so far has come right into the top section of the Fib retracement zone and so it’s… Look, it’s nicely proportioned. It’s a nicely proportioned pullback.
It’s been dragging on for a few months, but you’ve got to look at where it came from in 2018. So it’s quite natural for it to be having this sort of consolidation. So the big question is, where from here?
So you can see, I think we could still pull back below these lows and come back round into these areas here. It would still be quite a proportioned and a nicely structured consolidation or correction before we see potentially higher levels later on.
So let’s zoom in a little bit more in more recent price action. What I’ve been seeing developing over the last few weeks, we’re starting to see this rising wedge formation.
Now, this isn’t a great sign for the short-term. What normally… What we’ve seen here, we’ve got this… We had this really strong move down on the back of some comments coming out of the Fed over in the U.S.
We’ve had a pretty soft sort of rally back and it’s sort of been developing into this wedge. What a wedge normally does, it’s normally what’s called a continuation pattern where we’ve got to move down, we’ve got the wedge up, and then we get another move down.
What we could see, we could see something like this start to transpire in Gold where we do see some more weakness start to come in. So look, that could then again, you know, start taking us back down here towards that 50% retracement of this big move.
So I like Gold longer term, but it’s not giving me any confidence to sort of say, “Look, now is the time.” Look, this pattern may not eventuate. Gold could by all means, you know, start to, you know, gain some momentum and start to push to the upside.
But look, we’re just not seeing that at the moment. And the pattern we’re seeing is more suggestive that we’re going to see some downside come into Gold.
And look, if we just quickly have a look at one of the popular Gold stocks, let’s have a look at North Star which is one of the, you know, the big ASX Gold stocks.
And look, it’s not showing any vigor at all. We’ve had this decline. Let’s throw the moving averages on and have a look what they’re doing. Look, the moving averages are both pointing down.
We’ve got this little breakdown which appears to be happening at the moment. It’s not a time to be buying Gold just yet. I like it longer term, but the chart is not telling us that now is the time.
I don’t want to be getting too bearish having said all that because you look at something like North Star and look at all this support which is coming in just below…you know, it’s probably within that sort of region there.
A lot of support just below the market currently. So I don’t know. I don’t know what happens here whether it’s a case that North Star pulls back a bit more, is held by that support zone, you know, grind sideways for a few months and then starts to turn higher.
You can never discount the fact that it could break down and really go for a tumble. I don’t think that’s the base case at the moment, but it’s certainly not the time to be stepping up and buying it. The risk-reward, I just don’t really think is there at the moment.
And lastly, I was just going to just have a quick look at the Aussie dollar while we’re talking about the local market. So let me just find my currencies. There’s the Aussie here. What’s been going on with the Aussie?
So look, we’ve had this huge move last year up until February where the market peaked and we’ve been pulling back. Moving averages have rolled over. So what’s going on here? The U.S. dollar has been strengthening.
That’s been one of the headwinds for the Aussie. It’s also one of the things which is affecting the Gold market, the U.S. dollar. So the U.S. market has been… The U.S. dollar has been strengthening.
And if we just zoom in a little bit on the Aussie, you can see, again, you’ve got this wedge formation, similar sort of thing we’re seeing in Gold. And what I suspect this is all about is I think this has to do with the U.S. dollar and the strength that the U.S. dollars are showing and potentially going to show.
So this wedge, what I expect is going to happen in the Aussie, I think we’re going to see the Aussie do maybe something like that over the next few weeks. I think we’re going to see lower levels.
How much further the Aussie goes down? I don’t know. I’m not trading it. I don’t have a strong view on it, but just from a, you know, perspective of looking at Gold and seeing how all these pieces, the puzzle might be coming together, it’s an interesting one to keep an eye on over the next few weeks.
So I’ll be back next week. We’ll look at some more markets and see how these markets continue to develop. Remember, if you thought this was worthwhile, click the like button.
Let me know that I’m on the right track and you’re getting information that you like. And let me know what you’d like to hear more of. And look, we can cover that off next week.
So for now, that’s it for me. Good trading. Find some good trends and I will be back later on. Thank you.
I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.