Trade the Trend | Episode 15
By Jason McIntosh | Published 12 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?
00:00 Intro 00:21
Where is the S&P 500 going?
05:42 Where is the Russell 2000 going?
07:31 Where is the All Ordinaries going?
09:25 Where is gold going?
12:58 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 12th 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. S&P 500. Well, look, interesting week. This has been the sort of pullback that I was talking about. Pretty much this time last week when we were around here, I thought we may see some consolidation kick in just to check these events we’ve had from the lows a few weeks ago.
Look, it’s taken an extra week for this consolidation to start but it’s all very much what you’d expect from a rising market. You’ve got to have these pauses and consolidations along the way.
So, let’s draw some Fibonacci levels in to get some ideas of what could happen from here. So, I’m using this as a starting point. So, this was a low. We had a rally. We had a pullback. And so, I’m drawing the Fibs from the low of the pullback for this latest leg of the advance.
So, at the end of this market pullback, just to the 38.2% Fib retracement which would be quite a, you know, natural sort of, look, pullback within a structurally strong market. That is still a couple of percent below the market. So, I think there’s every chance that, over the next few sessions maybe, we do see a little bit more weakness.
We could end up seeing something. Again, this is always guesswork when I draw these lines on the chart, you know. Maybe we see a bit of a pullback down to here. And then from there, maybe that could be the springboard for a new high. Look, no one knows.
It’s always guesswork when you do that but that would be…that would fit into a bullish scenario quite nicely.
Look, I think the thing to say is here, there’s no outwardly obvious sign that there’s a large or significant top forming. At some point, we’re going to see this market come back and have quite, look, a very decent correction like 15% to 20% sort of depth to it. But that…there’s no sign of that happening at the moment.
So, I think at the moment, you know, the best case with this is to say, “Look, the trend is up.” And it’s to give that trend the benefit of the doubt until we get some sign that something else is going on.
And we will get that at some point. We haven’t had that bigger, you know, 10%, 15%, 20% correction for quite a while now. But for now, it’s a case of staying with that bullish trend.
And look, my process throughout this whole rise, you know, through the, you know, the whole market rise has been to use a wide trailing stop. That’s my process.
It’s not about trying to get out when you get a 5% or a 10% pullback but giving the market plenty of room to move to try and stay on these big trends, like, you know, these big trends for as long as possible.
There’s no reason that someone couldn’t capture this entire move with the right sort of trailing stop.
So, I’ll give you an example, I’ll give you a quick example of what I’m talking about.
This is a stock from my own portfolio. It’s a company called Lark Distilling. And this red line below the market, this is my trailing stop.
You can see I’m giving it a lot of room to move. Now, this is…quickly go back. This is where I got my entry signal. Got my entry signal back here. This was in July 2020, so, you know, a few months after the COVID lows.
And, like, just follow my exit stop with your eye as we just scroll through this. You can see, you know, the stock obviously moves around on its way up. It’s not one-way traffic. And then you get these periods like this.
Now, on this chart, that doesn’t look like a big deal but let me tell you, that’s a 23% fall and it happened over the space of about two or three weeks.
So put yourself in that position. One of the stocks in your portfolio now, which had been doing quite well, which had rallied…look, which has almost doubled in price, then loses 23% in three weeks. What do you do?
Well, I’ll tell you what a lot of people do. They sell. They say, “Well, that’s it. It’s all over. I’m getting out.” That’s if they hadn’t sold through any of these small pullbacks along the way up. And but look, that’s often a mistake because then, you see what happens next. It just…the trend continues up.
And here, this is another 20% or so correction which…you know, they’re hard. They’re emotionally hard, a lot of the time, to sit through if you don’t have a process, if you don’t have a plan. So, my plan is to calculate a trailing stop. If you’re interested, it’s an ATR-based stop.
ATR stands for average true range. And it’s basically the average trading range. And you use a multiple of that, that creates a traveling stop and that’s how I stay on these big trends. That’s very much how I think someone could stay on, you know, these advances we’re having in the equity markets at the moment.
All right, okay. So, let’s jump back to our charts. And so, look, let’s go to…briefly just want to touch back on the Russell 2000, so the U.S. small-cap index, because that was the most interesting breakout from the week before.
And we’ve been seeing that…so this is a… look, as you can see, big trading range, nine months in the making, this range, so very significant. And it followed, like, that big runup. So, this now becomes, you know, a really great launching pad for a potential new rally. And so far, so good. Only early days, though, of course.
But look, I think what we’ve seen this week is very constructive. So, we’ve had the breakout, having our pullback, a bit of a return move that would be called. So really important now, just see how things trade with this…the top of the range.
Want to see the market stay above here. You know, it comes back within the range, well, then it starts becoming a false break and that’s not what we want to see happen. But that’s not the best case.
The best case is that we would see maybe some little consolidation above the breakout point and then from there, then maybe we see the next leg higher. That’s the sort of thing I’d be looking forward to see how this…that’s how I think this could develop over the next few months.
But look, let’s wait and see. Let’s wait and see what the market does. And look, by the way, if you’re getting some value from this, please hit that like button. Let YouTube know that you’re getting value from the video.
Then YouTube will show other people and if other people are watching and people are watching in general, then I keep making them. So please hit the like button and if you haven’t hit the subscribe button with the bell notification, that really helps too. So please do that.
Okay. So over to the Aussie market. And look, the Aussie stocks are really still struggling around this resistance band which we have, you know, roundabouts through there, around that…look, it’s around the 7,800 sort of mark.
It’s been butting its head up against there for, look, a good two weeks now. Look, it’s going to be interesting how this plays out.
If the U.S. market does continue to pause, well, then maybe we are going to see the local stocks pull back a bit before potentially, like, punching through. But ultimately, I do think the market is going to come up and get above here and make a new high.
It’s just a matter of whether it’s going to take this sort of path, a little more consolidation and then up or…look, potentially, it does punch straight through.
Some of those iron ore miners are looking so overstretched on the downside that, you know, if they had a rebound, that could be enough to give the market a bit of a momentum push. But look, we’ve just got to wait and see.
But, you know, if you’re not a day trader and you’re using wide trailing stops for your portfolio, it doesn’t really matter whether this market, you know, pops higher next week or next month. It’s all about trying to stay with this overall uptrend until we get some sort of evidence that the trend is over.
At this point, there’s no evidence of that so use those wide stops to, you know, see a bounce of volatility like this and sit through, you know, pauses in the trend while we wait for the market to show us whether it is in fact going to, you know, take another leg up.
Okay. So, I’m going to finish up today with a couple of commodities, a couple of interesting commodities from the week. So, let’s just find them, gold. So gold is…gold’s at a breakout, breakout to the topside. So, I drew these lines on the chart a few weeks ago.
It’s maybe about four weeks ago when I was talking about gold.
And it is…look, it’s been a… this has been a big consolidation really since the highs back in August last year. We had a downward phase and then now, we’ve been having the sideways phase. Now, we’ve got the breakout.
So, it’s going to be interesting to watch this, to see whether this move does stick and whether we actually are on the way up for a significant new move.
I think, look, I’m very bullish longer…medium to longer term. I think it’s just a matter of time before we get a move up towards…look, up towards 2,400 and beyond, potentially. Look, whether this is a breakout or not, I don’t know.
But I think we’ve got to work on the basis that it is, give it the benefit of the doubt and we’ve got an upward break.
So, I think that’s positive for gold. So now, it’s a case of, like, you know, I go and I look at the gold stocks and go, “Look, where do we…where are the opportunities?” And, look, I’ve got to say, the opportunities aren’t standing out just at the moment.
And the reason for that…look, I’ll just quickly go through a couple of them. Let me put on the moving averages for this.
So, Evolution Mining, moving averages, they haven’t turned high. It looked like they’re starting to turn but they haven’t turned yet. Look, I don’t like to preempt a turnaround because sometimes, a turnaround doesn’t happen.
You can get stocks which look like they’re going higher and then they, you know, then they just, you know, fall and resume their downtrend. So, I’m going to wait. I’m going to wait before I add to any of my gold holdings.
Then I look at stock like Northstar. Moving averages are again turning higher. We had this port band through here. So that’s encouraging but, look, it’s possible that these do some work. I’m not expecting these markets, these stocks to, you know, to do that. That’s, you know…it’s very unlikely. That rarely happens.
It’s more a case that we’re going to see some backing and filling, you know. We’ve got some initial upside and maybe it comes down and, you know, it does this for a bit. Then starts to work its way higher. You’d expect more something like that to develop and that gives you time to get in, gives the moving averages time to cross.
And look, you know, maybe just…you know, just maybe, this level here, today’s level, maybe this level’s trading in a couple of months’ time as it does start to break out. And it’s a…it then looks…the look of the chart is a whole lot more sustainable to me and I’m more confident in the moving averages going the right direction.
So, for me, today is not the day for the gold stocks. But look, it’s looking interesting. And you look at a big U.S. stock like Newmont. Newmont’s looking really encouraging. Big support basis broken…that it’s bounced up off. Moving averages again, look, they just haven’t crossed this yet.
So, I’m waiting and watching but, I’m positive. I’m watching for the positive outlook to hopefully getting some more gold exposure over the coming weeks.
And just the last commodity to quickly look at is…because it’s also significant to what…how this has played out this week. So, we’re over in my commodities, silver.
Silver. So, look, this is a… I drew this up last week, this big trading range silver’s been in since August last year. So just over a year. And I drew this pattern in last week. This is a… last week, it was a potential pattern because we hadn’t broken above what was the hypothetical, you know, neckline which I’ve drawn through here.
You know, I think we’re here down here somewhere. So, look, we have the potential makings of an inverse head and shoulders pattern. This is cool. So, you’ve got the two shoulders either side and you’ve got the head. This blue line’s called the neckline.
So, the theory with these patterns are that the silver’s failed to continue the downward momentum through here for short of making a new load and then reverses course, breaks above these previous high points, which form this neckline, which is where we are now.
So theoretically how this would play out is it could maybe go a touch higher. Then maybe we get a return move. We get a bit of chop. Another move higher. And then we start to make our way up towards the top of the range. Who knows whether it plays out like that, but it could.
That’s a sort of possibility. And that’s what this is all about, is looking for possibilities. That’s what…how we could see silver start to develop and it fits in with the scenario in which we’re looking at in gold.
So, with silver, I want to…I’ll give you a little bit more of a bigger picture view. Let’s go over to the weekly chart and just have a quick look how that shapes up. And it’s really interesting looking at silver like this because it’s got that classic boom-bust profile. You know, the giant boom here through the…just peaked in 2011.
And then, you had the bust and then, you’ve got the, you know, multiyear, you know, traverse through purgatory before the new uptrend develops. That’s often how these scenarios play out. And you see these. These do reasonably regularly appear in markets. So, I’ll just give you a quick couple of examples.
So, look, the Nasdaq is a great example from back in the dotcom days. You had the boom and then you had the bust. Different type of rebound. It, you know, started to gain momentum, fill again and it was, you know…it took a while but then eventually really got going. Another example is Bitcoin. Bitcoin is a great example of this.
Let’s just expand this out a bit to get into the right area. This is the one I’m after because there had been a few of these in Bitcoin. It’s had a few boom-busts. But look, you can see the same profile here.
Boom, bust. You know, you traverse through purgatory and then up it goes. So, look, I don’t know whether silver’s going to exactly follow either of those scripts.
But it’s got that potential. It’s got the potential over the next…I don’t know, the next year or two maybe to start to make its way back up to a new all-time high. Going to be very interesting to watch.
So how do you play it? How do you play silver? Well, one of the…look, plenty of individual stocks I’m saving for another day but just a couple of, like, ETF options. ETF’s often a convenient way to play a big move like this because you don’t have to worry about getting the individual stock right.
You’ve just got to get the overall move right which is hard enough on its own. So, there’s a silver mining ETF in the U.S., Global X Silver Miners. Ticker code is SIL. So, look, it’s an interesting…it’s got a similar profile to silver in that we’ve had the rally, we’ve got this sideways consolidation, sideways to downward sloping consolidation.
Potentially we get a kick up over…this is, like, going to play out potentially over months, not days or weeks. So, I don’t think there’s a rush to go out and consider this, you know, tonight, you know, next week or whatever.
Because then when I look at it in the daily chart, that was a weekly a moment ago. Just jumping back to the daily, moving averages haven’t crossed. So, look, maybe the timing’s not quite there yet.
But it is a sort of pattern which does support, you know, potentially much higher prices. So, look, it’s an interesting piece to look at and think about.
And so, look, let’s call that a wrap for this week.
Please give me a like if you’ve got some value out of the video. And yeah, look, I will come back next week. We’ll try and put it all together again. Thanks for joining in. look forward to seeing 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.