Trade the Trend | Episode 2
By Jason McIntosh | Published 13 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?
00:37 Where is the Dow headed?
02:20 How many S&P 500 stocks are above 50-day moving average?
03:50 Where is the Russell 2000 headed?
06:33 Where is the All Ordinaries headed?
08:07 Is Telstra a buy?
12:05 Where is gold Gold headed?
19:00 Where is Oil headed?
20:32 Is Woodside (ASX:WPL) worth buying?
21:02 Is Santos (ASX:STO) worth buying?
21:31 Is BP (NYSE:BP) worth buying?
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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 13th of August, 2021. As always, this is a general commentary and doesn’t take your personal situation into account.
If you are new to this channel, well, what this is all about is I cover the latest developments in the markets and I focus in some of the opportunities and trends that I’m seeing.
Now, if you like what you see, please hit the like button. Let me know you’re getting some useful information and also leave me a comment. Let me know which markets or stocks you’re interested in, and I might be able to cover them in a future episode.
Okay, well, without further ado, let’s get into this week’s episode. So I thought we’d kick off today with the Dow. So it’s been an interesting week. We’ve seen the market decisively break higher from this big trading range we’ve been looking at.
So let me just draw the range on the chart here. So this is a trading range the Dow’s been in. It’s been in since May. So it’s like quite a few months of choppy sideways consolidation.
And you can just see up here, we’re now clearly through the top of it. Now, this is a really positive development. So what you’d expect from a range, what happens when they break, you normally get a measured move.
Well, this is a theory that we look at with coming up with potential price targets. So the measured move out this takes the market up to just below 37,000. So if we just measure how far that potential is, there’s the breakout up to around here.
So, look, that’s showing a move of close to 5%. So that’s interesting, isn’t it? Like, could we see the Dow kick on another 5% from here? Look, it’s entirely possible.
So we can see we’ve had this nice big run-up here into the consolidation. We’ve had the sideways period, and now we’re getting the breakout. So, look, the trend’s up. You got to go with it.
You’ve got to say the base case that we see this move up towards 37,000. And look, I think that’s entirely possible over the next few months.
Having had a look at that, let’s jump over and have a look at the S&P 500 because my big concern over the last few months has been the lack of breadth in the market.
So what we’ll do here, I’ll put a comparison chart in, and we’re going to look at the number of S&P 500 stocks, which are above the 50-day moving average.
So here it is here just below in the orange.
So what we’ve had, we’ve had, like, this period where the market’s been rising, but the number of stocks above their 50-day moving average has been in decline. And that’s been a real worry.
So that concerned me that the market’s been held up by just a few of those big tech heavyweights like the Facebooks, Apples, the Amazons, you know, the likes of that.
And what we’re seeing now, we’re actually seeing breadth increasing in the market. So you can just see here, the number of stocks above their 50-day moving average, well, it’s on the rise.
It’s up to 67%. So this is a good sign that there’s now broader participation in this rally. And it gives me some more confidence at this breakout of the range.
Look, it could be the real thing, and we could see continued strength in the market.
And, you know, we’re now seeing this rotation into the industrials and the financials. So, look, it’s not just big tech doing all the work. But, of course, nothing’s…well, things are really clear cut, at least in the stock market.
So the one thing holding things back now, we just jump over to the Russell, the Russell 2000. So this is the index of the U.S. small caps. So we say small caps, but they’re still pretty big companies.
Like, we’re talking, like, multi-100 million dollar companies generally. So this is still stuck in the mud, really. It’s in this big range, it’s been in the range for ages. So let’s just have a look at the range. Yeah, look, this is it. It runs across there.
So the small caps haven’t come to the party. They’re not rallying at this point. Look, this range goes back to, you know, late February, early March.
What’s worrying me a little bit on this chart is that, you know, we’ve got signs that like this here, this little pattern here, it looks a bit like a rising wedge formation.
And what you could get out of a rising wedge, so we’ve had the move down, you had the choppy, you know, soft sort of rally back up, now, if this were to break outta this to the downside, you could get this sort of pattern developing.
And look, you know, that’s then taking us down to the bottom of the range. So there’s the bottom of our range there.
If we do sort of start getting back to there and we break below it, well, then, you know, you’ve potentially got a measured move from this whole range, you know, down around here somewhere.
So, you know, that’s a concern. Look, you can’t see the Russell doing this on its own. I just get a little bit worried. Is this the canary in the coal mine? Is it the one which is saying, “Well, the market isn’t as healthy as it may seem.”
It’s not my base case by any means. I think the base case is the trend is up and we’re going to see higher levels. But look, it’s always worth being aware of alternate scenarios.
And this is the alternate scenario to be aware of that we do see some weakness in this. But look, I think, let’s run with the base case that we’re in a bullish phase and that at some point in the coming weeks to months, that we’re going to see the Russell break upwards.
And so rather than this downward break, maybe it’s going to be a case of the Russell doing something more like this, starting to sort of move up towards the top of the range and then heading up and confirming what we’re seeing in the Dow and the S&P.
So, look, just one to keep an eye on for now and see where this smaller cap index goes. Okay. So let’s jump over to the local market. Now, this has been great. We spoke last week about a measured move from the All Ordinaries.
So we were looking at…no, I won’t do that. Let’s jump over to this. We’re looking for a measured move out of…we’re looking at this rally there, the pullback, and then potential rally out of there was up around here.
We’re getting close to those targets now. And last week, we were also looking at a price channel that was showing up in the All Ords. So let me just try and just quickly pull this together.
It was something like this. That’s the price channel the market’s been heading up in. It’s around about here. So we’re now really getting up towards the top of that price channel, getting up towards our target zones.
Look, the trend’s clearly up. We do have some resistance above there, but look, at the moment, I think it’s very much a case of going with the trend and leading the market, see whether it can push above these resistance zones.
You know, path of least resistance is very much to the upside. I’m long the market. I’m going to stay long the market as long as this trend remains positive.
Okay. So they’re the equity markets.
Let’s have a look at an individual stock, a stock in the market this week has been Telstra. It’s interesting stock. Let’s see, where is it? Here we go. Telstra. So this has been the news, had some good results, had a really nice move higher on it.
I was on Ausbiz during the week on the segment that got called “The Call.” I was on with David Kosh and the CEO of Telestra. He was on with me as well.
And this was interesting because we were just talking about the result, what this meant for the stock, and it’s so interesting how good news often comes out and vindicates the direction of the trend.
So, Motion Trader, I gave a signal in this stock. It was back in February, this came out as one of the Motion Trader signals. The signal came in, it was just in this period here. And it was like early stages in the trend.
Let’s just throw the moving averages on. You can see just here, the moving averages had crossed. Stock broke up to a 70-day high and that gave a signal.
Few interesting things to talk about here. You can see it didn’t rally straight away. We had this, you know…pretty much the day the signal came out, the day after, we had a fall.
And then we’ve got this period of sideways trading through here before the rally really started to kick in. And this happens quite a bit. People often see a buy trigger for a stock, and they think, “Well, okay, well it’s going to run straight away.”
Often, they don’t. Often, you get these consolidations before the trend continues higher. You can never time these things perfectly. Sometimes they run straight away, sometimes they take a while to get going.
This one took another couple of months to get going, but then look at the trend kicking after that. And we’ve seen that acceleration in the last few days.
Now, one of the interesting things I spoke about on the show was…let’s have a look at a weekly chart because this is interesting, because you need to step back sometimes and have a look at the bigger picture of a stock.
So this is a point I made yesterday on the show. And by the way, if you want to see the show, I’ll leave the link in the description on this website so you can go and check it out.
Probably need to register at Ausbiz to watch it, but it’s worth doing, it’s a really good resource. So the point I was making was that there’s a resistance area. Resistance support zone for Telstra comes in at around $4.
So here it is on the chart, just widen that a touch, that’s it there. So just have a look at this. So all the way back to like 2003, you can see it’s hit this area, rebounded, come back.
Little bit of turbulence around here before breaking through, came back again. It’s like a little bit of a point here before it got through. Here, it’s acted as support. Here, it’s acted as resistance.
It has gone through, but didn’t go through in the first attempt, came up, challenged the level, pulled back, then punched through. Down here, it came, it bounced, it’s been a support this time, rallied then broken through.
Here, it actually turned the market south again. So we rallied into it and this actually held it and caused a…what’s that? An 18-month decline. So it’s quite significant there.
Testing it again. So, look, I think the market’s going to break above this level. I think the trend’s strong enough to punch through. But look, it mightn’t go through on first attempt.
And we often see these round numbers, big round numbers in indices and stocks that kind of get stuck there for at least, you know, temporarily, sometimes for, you know, quite longer periods.
So interesting just to watch Telstra here. I think we’re going to break through. I think we’re going to see higher levels. But yeah, let’s just see whether there’s a little bit of turbulence around this $4 area. Always interesting to watch.
So let’s move on to gold. Gold’s had a very interesting week. Let me just find it, here it is. So, yeah. Now, let me go jump over to a daily chart for gold.
So, last week we were talking about this rising wedge formation, and we were saying that the worry was that it’d been a pretty soft rally.
Wasn’t gaining any momentum. And the concern was maybe it’d break to the downside and come back and test these lows around here. And lo and behold, that’s what it’s done.
It fell out quite aggressively, came back, hit this low and has quickly rebounded. So what happens now?
So I think that quite often when we see these bounces off a low, we often come back and retest the low. But just before I get to that, let’s just jump back.
Let’s just jump out and have a look at the weekly chart. I just want to put this whole thing into perspective because, look, if you’re looking at gold and you like gold and you see this, you’re just looking at this snapshot here, you might be going, “Geez, this is awful.
Gold is actually falling apart.” But let’s, let’s get some perspective to this discussion before we look at what could be on the near-term horizon. So just look at gold from this perspective here.
Look, I’ll tell you, we can go back to 1975 on this. And what do you see when you look at this chart? I’ll tell you what I see. I see a really big, long-term uptrend. Now, not everything happens every year, year in, year out the thing goes up.
But I’ll tell you what, out of all the commodities, this is probably the strongest longer-term trend out of all of them. So let’s just push that back a little bit and focus on this move from 2000.
So I’m going to do the Fibonacci retracement on this. If you’re not sure what Fibonacci retracements are, just look them up on Google. They’re common areas of support that a lot of traders will look at.
So let’s do the fib first on this move here. I actually got the wrong one. I think this is it here. There we go. That’s what we’re after. So this is interesting. So, look at this, we had this big move.
I think it was about a 10-year rally, 10 to 11 years it took to do that. Came back, took a few years to do this, came back to 50%. Then we had the next rally, had this rally here, took off.
And you can see just in here, the Fibonaccis pulled below the 61.8. This one came back to the 61.8, but pretty much held, you say held the Fibonacci levels. Next leg up.
Next leg up, we’re going to measure from here to here. So far, this rally is very much doing what all the rallies and the corrections have done previously. It’s come right back into this Fibonacci zone.
Now, when I look at this, like, look at this move here and then look at the correction we had, you know, it’s nicely balanced and this didn’t correct over the course of six months. It took a few years because this here took, like, 11 years.
This move up here has taken…How long did that take? It was a couple of years, probably a couple of years. So you got to expect this pullback and consolidation. Quite feasibly, this could go on for like 18 months or so before we see the end of it.
Started here in August 2020. You know, we’re potentially, you know, got another…we could easily have another six months within this pattern and the overall trend is still comfortably up.
So what we could see developing here, let’s jump over to the daily chart. Look, what I think we might see go on here is some more consolidation. I think we might come back and test this low at some point.
You know, could see something like that take shape over the next few months, come back, test this low, do that. Then I think we’ve potentially got the launching pad for something pretty impressive, a really good rally.
You know, when we might look at this in, like, 12 months time and see something like that develop. So this is just complete speculation. No one knows how these things play out.
But look, this is a sort of pattern that could develop in gold over time. So it’s going to be an interesting one to watch. Look, something like that. You know, it’s like a textbook sort of pattern.
You see that sort of thing develop all the time. And I think the key now is to be patient. I think we’re going to get a compelling buying opportunity in gold, but it’s going to take time.
These things don’t happen in a hurry. They don’t happen to our timetable. It happens to the market’s timetable. And I think what we’ve seen so far is a very healthy cyclical pullback in a very long-term bull market.
You know, the sell cycle, it’s all part of the market. And you can’t avoid it. It’s just, you know, how it goes. And you just got to manage your portfolio, your positions through the sell cycle.
Don’t get carried away, don’t run in and, you know, buy the dip when, you know, the dip can keep dipping for a while. And you got to come out the other side so you’re ready to, you know, take the price action on when it does really start to move higher.
And that opportunity in gold, I think it’s coming. I don’t know exactly when it will be, but this is what I’ll be looking for. I’ll be looking for these pullbacks to be held by the Fibonaccis, start to look for a move back up, and then, you know, we could have some interesting stuff going on.
But look, the trend’s going to tell us, we’re just going to keep an eye on things like the moving averages. We’re below the moving averages now, so there’s no hurry to get set. Let’s just, wait, wait, watch how this plays out.
At some point, gold’s going to move above the moving averages and it’s going to provide an opportunity. That’s when we get interested, that’s when we get excited.
So let’s move along quickly. We just want to wrap up in a moment, but quickly, let’s just have a look at oil. So oil’s been…I had somebody ask me about oil just last week.
They said, “Look, can you have a look at the oil market?” And let’s just call that up now. Crude oil futures. Let’s have a look at this one here. I should be able to get a long-term chart on it.
So, look, the first thing I’d say is I think we’re in a consolidation at the moment. We’ve had this huge move up from here. And just like we had here, you know, we had a consolidation here, this was another period of consolidation.
I think we’re seeing the same thing go on now. It’s probably got longer to play out. I don’t think there’s any hurry to dive in and buy oil. And it was interesting earlier on when I was having a look at a weekly chart, long-term chart of oil.
Let me just clean that up. And what you can see here is we’re actually at a bit of a level. So look at this, look at this resistance span. So here, this has been support, here’s resistance, resistance again, market’s pulled back from that.
Look, I think we could chop around for a while keeping this in proportion so you got to move up like that. You got to expect there’s going to be some work. You know, we could well see oil, you know, consolidate.
Could see it moving a band like that for the next…really, it could really move in a band like that for the next year or two. That could be all the excitement for a while. I don’t know, but I don’t think there’s a hurry to get excited about oil, just looking at some of the local oil stocks.
Like, you look at a stock like Woodside and the oil stops have actually been quite disappointing given the extent that oil was rallied. So you look at Woodside, you know, not much going on there. That’s a really, really soft and sloppy rally.
I actually bought some a few months ago. Where’d I get it? I think I got in somewhere around here when it looked to be breaking higher, but I ended up getting out soon after around here because it just wasn’t doing much.
It just wasn’t showing the momentum you’d want it to show when you got oil looking so good. Santos has probably been the pick of the big local oil stocks, but even still it’s not particularly exciting, hasn’t gotten back to its pre-COVID levels.
So, look, I think I’m pretty happy just to leave oil alone for a moment. I don’t see anything exciting happening. Like, this is just staying a pullback below its moving averages.
One more stock. Let’s have a look at an international stock. Let’s have a look at BP. This is one of the, you know, the big global oil producers, and it’s the same sort of thing as we’re seeing locally.
It’s just a very uninspiring rally, not much going on at all. You know, the moving averages are heading down below the 100 day. So, look, I don’t see oil as being something we need to move into in a hurry.
If oil does start looking interesting, well, the moving averages will turn up and we’ll get signals. But at the moment, there’s no point getting in there, preempting this market to turn around.
Okay, well, look, I reckon that’s a wrap for this week. Remember, if you liked it, if you got something useful from it, please hit that Like button, let me know, hit the Share button, send it out far and wide.
And look, I’ll be back next week. Let me know if there’s any stocks you want to have a look at and, yeah, have a good weeks trading and investing.
Find some good trends, and I will see you next week. 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.