Trade the Trend | Episode 14
By Jason McIntosh | Published 5 November 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?
00:21 Where is the S&P 500 going?
02:40 What is the VIX doing?
04:48 Where is the Russell 2000 going?
08:00 Where is the All Ordinaries going?
10:46 Is bitcoin going to $100k?
13:49 Where is silver going?
Where to invest now?
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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 5th November 2021. As always, this is a general commentary and doesn’t take your personal situation into account.
All righty, with that said, let’s jump to the first chart, the S&P 500 and, well, look, it’s been another positive week for equities. New all-time highs and that’s been the case across pretty much all the U.S. indices.
Not so much in Australia, but in other parts of the world, new all-time highs as well. So generally a positive week. This time last week, we were sitting around here and I was saying that I thought that some sort of pullback was possible.
And well, so far that hasn’t been the case. But look, this has been, look, quite a strong and unchecked rally at this point, you know, from here. We really haven’t had any pause and I still think that we do need to see some sort of consolidation come in.
Look, by that, I don’t think that’s anything of any particular note, but look, I’m thinking something like, you know, when we look back at these past moves for some sort of guide like, there we got a strong move and then we get a consolidation, you know, move up, then we get a short pause and consolidation.
That’s the sort of thing I’m looking for. Some sort of pause in the market and then continuing higher. But look, if you’re a medium-term trend follower like I am, look, we just put that down as being market noise.
The sort of stocks I’m invested in training at the moment, I’ve got wide trailing stops. That’s the way how I approach the market through my motion trader service. And so wide trailing stops should easily see off any bout of, you know, short-term consolidation.
A wide trailing stop will even see you through this sort of period here. So look, we get a pullback. I don’t think there’s anything to be worried about.
At this stage, I’d say the bulls are firmly in control of this market and what we had right here, this pullback, what it did, it really unwound the overbought situation which we started to get through here.
It just…the market did need to have a break and we got that break. And it’s going to take quite a bit of work I think to get this market to turn bearish at this point. It’s not saying that I think it can happen overnight.
So any pullbacks, I’m expecting to be very much temporary and I expect, you know, the market to come in and buy any dips.
So there’s a chart I want to show you. It’s an interesting one.
I haven’t shown this one before. It is the VIX index or the volatility index for the S&P 500. Now, I’m going to jump over to a weekly chart to show you what I have in store here and we’re going to go all the way back all the data.
And this goes back to about ’91. Okay. So when I look at this, I can see a big support region. So let me just draw this on the chart. Let’s say it probably kicks in somewhere around about here.
It comes all the way through where we are now. Yeah. Look, there we go. That’s it. Yeah, just broaden that a touch. So yeah. So we’ve got this big support zone that’s been in place, you know, since pretty much they started calculating the VIX.
This is the GFC, this period here. After the GFC, volatility stayed elevated for a few years really, and then it started to, you know, pull back down towards this big support band.
So what I’m looking at here, I’m looking at where we currently are. We’re still currently, you know, relatively elevated where the VIX is, and look, this may not be happening right now.
But there’s certainly scope for the VIX index to continue to decline back down to this region as it has done, you know, so many times over the years, goes from elevated levels, it comes back down into the support.
What’s significant about that is as volatility falls, it becomes possible to take on more leverage and leverage is fuel for a bull market. It means more buying power and so, look, this is just saying interesting to keep mind.
Should volatility continue coming off? Well, then that’s a potential tailwind for equities, you know, over maybe the months ahead. Not so much at play for the next few weeks, but over the months ahead. So an iteration to be aware of.
Okay. So the next thing I want to do is jump over to the Russell, the Russell 2000. Well, this has been the most…Look, I’d say this has been the most interesting mover of the week.
We’re talking about this. I think it was three weeks ago, and I was drawing attention to this little triangle pattern that was forming. And I said, you know, the market was coiling up within this triangle.
And if we got a break out of the triangle, well, then there’s a test of the upper bounds of this big range, which has been in place since February.
So pretty much the whole year and if we break out of the range, well, I said, “Well, that’s going to be a really bullish sign, I think really overall form for the markets because, of course, the Russell’s not going to move on its own.” And the Russell is made up of the U.S. small caps.
So it’s pretty much the backbone of the U.S. economy, the small caps. And if they’re doing well, well, then that’s a sign, I think, that the whole economy, the whole U.S. economy is doing well. So that bodes well for stocks generally, I think.
So look, what we can do from here is we can project higher out of this range. So we take the width of the range, which is basically this rectangle. So let’s take this rectangle and project it up to the top of the range.
It takes us up here. So this is sort of like a target. This is a potential target that this market could be heading towards. Now, this isn’t going to happen in a couple of weeks. If this all plays out, this could happen over the next few months into next year.
But look, you know, maybe this is all, like, speculation, of course, as always when I draw these lines in, maybe we’re going to get a bit of return move to the top of the range, maybe it, you know, trades sideways a bit, have another leg up, pull back, then up.
So you know, we could look at this in…I’ll look in a few months’ time and start to see, you know, this sort of pattern here forming in the Russell 2000. So just measuring that. That is something like…Let me just do that again.
Here we go. Look, it’s saying like about, you know, 13% or thereabout. It’s above current levels. So yeah, look, that could be a good tailwind for equities in general. It’s a positive sign.
I know some people are out there looking for the tops in markets, and still saying, you know, the market has to come back. Market doesn’t have to do anything. Market’s going to do what it’s going to do and at this stage, we’ve got to break out to the upside.
So I think the smart play to do is to go with the break. Don’t argue with the market. The market’s going to go where it’s going to go and that’s what trend following is all about. It’s about following the trend of the market and seeing where that takes you.
That’s very much I’m doing with my motion trader service and the signals that we’re seeing through there at the moment for entries into individual stocks.
All right. Let’s jump to the local market, the All Ordinaries.
Well, look, the All Ordinaries has been…look, it’s been struggling. It hasn’t been the strongest of the global markets. Much of that’s to do with the iron ore miners, BHP, Rio, and Fortescue, BHP and Rio in particular.
And, you know, there’s this. We’ve got this resistance band. Yeah, it’s somewhere. Yeah. Look, I was talking last week about this. It’s not a clear-cut level, but, you know, there is congestion somewhere, you know, somewhere in this bound here.
The market is really, like, it’s making heavy work of trying to get through there. I think it’s going to get through there. I think we’re going to make new all-time highs. I think it’s just a question of how we’re going to get there.
Look, I think it’s still possible that we see this market maybe…If this U.S. market does stall and does consolidate, you know, it’s possible we do see the local stocks, you know, maybe do something like this, move sideways a bit more, and then start to ratchet up from there.
It could just be a case that we end up with, you know, just a bit of a wider consolidation band before this market is ready to read to move higher. But look, as I said, I think it’s going to happen.
If, you know, you’re using your wide trailing stops, none of this should be a particular concern. You know, if you’ve been able to see off this period of volatility, I think if we do see something like this, I don’t think it’s going to be a big ordeal.
But of course, look, we’ve got to wait and see how price action develops. It doesn’t do what we expect it to do much of the time really.
So it’s a case of, you know, react to what’s happening rather than have clear-cut ideas about what has to happen because, you know, as I was saying, the market will do what it’s going to do.
So we’ll wait for signals and really wait for a clear break above this point here to give us a good signal that we’re heading up to new all-time highs.
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It just means I can keep making the videos. So okay. With the stocks covered, I want to jump to a couple of other things.
So let me just look here for what we’re going to look at next. I want to have a quick look at Bitcoin. I haven’t spoken about Bitcoin before on “Trade the Trend.” Reason being is, look, it’s…Well, look, the reason I’m covering it more to the point is I’ve had some requests.
I’ve had some requests to have a look at Bitcoin. And it is interesting, this is one which I do keep an eye on myself even though I don’t often speak about. So what we’re seeing here is Bitcoin broke to a new all-time high, look, just a couple of weeks ago.
So only just got above it, but look, as so often happens when a market gets above a new all-time high, particularly when it’s had a bit of a run to do so, it will then pull back and consolidate.
And that’s very much what we’re seeing in Bitcoin now. But I think overall, this structure looks…It looks like a pretty positive sort of structure and so this pullback could have a little bit further to go.
But look, overall, like, you know, people talk about 10,000…Oh, what is it? A hundred thousand. It’s used to be 10,000 Bitcoin. Now, they talk about 100,000 Bitcoin and I think, look, I think 100,000 bitcoin is really becoming a bit of a magnet.
It’s like, I remember when they used to talk about 10,000 Dow. That’s back in the 1990s. Never been there before. It was a number which, you know, which a decade earlier, it was considered inconceivable back when the market was at 1000, but, yeah, eventually it got there. It acted like a magnet.
The market just gravitated towards it. My feel is Bitcoin is going to do something similar. Look, I don’t know how it’s going to…What the price actually is going to be to get there.
But look, we could see something, you know, like this develop over the…Like, I don’t know how long that would take. That could take six months, it could take a year, it could take longer, it could be quicker. But I think that, look, you know, price structure like that is it’s quite, you know, it’s very achievable.
It’s very common to see markets that look like, that resemble that. Now, people still say, “Look, Bitcoin’s a fad. It’s going to go away.” I’ve got to say, I don’t think it’s a fad. I think these cryptos are here to stay.
This market has had a number of, like, you know, booms and then busts, and then it keeps coming back, you know. Another boom, another, you know, another somewhat of a bust, and now it seems to be booming again.
Tulip mania in the 17th century, that was a fad. The tulip price went up and it came down, and it was all over. But the resilience of Bitcoin keeps coming back suggests to me that it’s more than the fad.
There’s something more going on and I think, yeah, look, I think it’s going to keep going higher. And it’s also becoming more mainstream. It’s still got a lot more to go in terms of becoming mainstream, but it is moving in that direction.
All right. Okay. So from new money, Bitcoin, let’s jump over to old money. And the old money I want to have a look at today, it’s not gold, but silver. So silver’s looking really interesting. So let’s just, yeah, let’s look at it like this.
Okay. So firstly, I want to look at this. Just this area over here. This looks like potentially the relatively early stages of head and shoulders, inverse head and shoulders pattern.
So this is a pattern which works so well on the U.S. market a few weeks ago. Look, it may or may not form, but it is sort of something I’m looking at. So we’ve potentially got a shoulder there. We’ve got a head here and then, of course, over here is potentially another shoulder forming.
So I’m going to keep an eye on this and see how this plays out. If this were to play out, like, possibly that’s a sort of play that could come from this.
And it’s also interesting because when we look at this from a little bit more data, you get this big congestion band which we’re currently in.
The market’s just come back and tested the base of that band, and now should this head and shoulders play out, well, then that could take us back up towards the top of the range. And look, it’s going to be a really interesting one to watch.
You can get some really good measured moves out of this as well. So if we do a measured move from the base up to the high and then down to here, like, look where you get the price targets.
Price targets for silver get up to around $40 and we’re currently down at $23. So we’re almost talking about a potential doubling. You know, we saw copper double in price last year.
Is the next 12 months going to be about silver doubling? If silver’s doubling, I’m expecting gold is going to be in there playing its part as well. So maybe there’s a precious metals theme, you know, on the horizon.
Isn’t the case of getting there and buy it now. We want to see how this plays out. We need a little bit more information, but it’s something interesting and setting up. And so, you know, let’s keep an eye on this.
And also it’s interesting because, from this high here, it’s a really nice ABC pattern. So zigzag, the classic zigzag consolidation correction.
So look, that’s an interesting one.
So I’m going to keep a close eye on this and I’ll come back on another week, and we’ll look at some individual silver plays should this start to develop into something a little bit more interesting.
So we’ll save that for another day. All right. Well, let’s call that a wrap for this week. If you’re still watching, please give me a like. I love to get those likes. It really, you know, it also gives me my enthusiasm to come back the next week when I know people are getting some benefit from these.
So I hope you enjoyed today. I hope you got something out of it and I’ll come back, and we’ll put all the pieces again together next week. So thanks for joining in. See you next week.
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.