Trade the Trend | Episode 22
By Jason McIntosh | Published 7 January 2022
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?
00:20 Where is the ASX 200 going?
09:00 Inside my portfolio
15:18 Where is the S&P 500 going?
18:12 Where is the Nasdaq going?
19:25 Where is Apple going?
20:42 Back to the Nasdaq
24:01 An unhappy viewer
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 7th of January, 2022. As always, this is a general commentary and doesn’t take your personal situation into account.
With that said, let’s jump to our first chart. Okay. Well, we’re going to start with the local market today, the ASX 200. And, look, it’s been a really interesting couple of weeks. We’ve had a key breakout. We had a key breakout in the Aussie stocks in late December. I’m just going to draw the pattern that we’ve got that we’ve broken out from on this chart.
It’s a symmetric triangle. You probably remember. We’ve been looking at this, oh, look, maybe over the last month or so, maybe the last six weeks, and formed up really nicely during this period here.
And the symmetric triangle, look, it’s one of my favorite chart patterns and it’s also one of the most reliable chart patterns. Now, when I say reliable, that doesn’t mean that it works every time. No pattern does. The market doesn’t give anyone a free kick where they know they’re going to get a point but, look, it generally is quite reliable.
And, look, we’ve been talking about this a bit over the last few weeks, and really this really does have all the hallmarks of a classic continuation pattern. And by that, I mean, like, you know, where you get a rally in the market. You get a good market rally. You get a consolidation and then you get another rally. That’s what a continuation pattern is.
And it’s interesting to look at this one how it all started. So, it started here back in August. Now if you think back to what was going on in August, look, we had the Delta lockdowns across particularly New South Wales and Victoria. Inflation scares were coming into the markets, and that was rattling a lot of investors.
And iron ore was also really getting into its full-on collapse from around this August point. And then we had the sell-off during September-October where there was a lot of nervousness, a lot of skittishness in the markets. And really this whole period took four and a half months to work through, a four and a half month consolidation. z
And so, look, we had this break high here. It was just prior to Christmas where the market nudged high and then got another kick along just after Christmas before New Year’s. Then we came in for the first day of trading for the new year. And it was actually the ASX 200’s biggest opening session ever for a new year.
So, look, that was all looking pretty good, pretty encouraging. But within just, like, a couple of weeks of this breakout, the integrity of the pattern is really now being tested with the sharp sell-off that we had in the markets on Thursday. And a lot of this comes back to what’s coming out of the Federal Reserve in the U.S. with the typing program looking like the rate of that and the timing of that increasing.
And so, look, let’s jump over to the hourly charts because as you probably know, I like the hourly charts for getting some more detail as to what’s actually going on. And now, when we look at this on the hourly basis, let’s start by putting in the Fibonacci levels of the last run higher. So we get from this point to the peak.
And so, look, the market fell through the bottom of the Fib levels. That’s a warning sign. Look, you’d normally expect a healthy market is going to stay above the 61.8. It doesn’t mean that that’s it and it’s all over but, look, it’s definitely a flag and a red flag at that.
And now look at this rebound that we’ve had during Friday. Look, potentially, it can all work out from here, but I do worry that we’ve had this snapback rebound.
And then just looking through what’s been going on today, we’ve had this sharp move back down, you know, raising this little rally we had here early on the open on Friday. Look, the worry is that this rolls over and starts to come back down, and then we’re testing Thursday’s low point.
And if we do break below this low point from yesterday, which is Thursday, I think you then have to say the market then goes into neutral territory. So, look, I think if that were to happen, look, I think we would have to consider some of the more bearish scenarios but, look, that hasn’t happened yet.
So, look, let’s just jump back to the daily. Okay. I’m going to get rid of those Fib levels. We don’t really need them just now. Let’s just have a look at this on the daily. So, look, let’s start with a more bearish possibility.
The bearish possibilities of this market does start to roll over again, and that over the next, next week, we see it come back towards the low from Thursday and then break down back into the range.
Look, it’s very much a possibility. It’s not my base case. At the moment, I’ve got to give the bullish side the benefit of the doubt because that’s the trend. The overall trend of the market is up, but this is something that we’re on the lookout for. We want to be aware that this could happen and be prepared should that be the case.
But now let’s look at the bullish side, which, look, they say the bull market climbs a wall of worry. It’s certainly everyone is always worried, “When is the top? When is the top?” Lots of worry all through this period here and, you know, the market did keep rising. So, that’s why you give the path of least resistance, which is currently to the upside, you give that the benefit of the doubt.
The way this could play out is that the market does stabilize around here, look, maybe over the next week or two. And then we start to see it move higher like that. Look, that would be your classic triangle pattern where you get the breakout, you get a return move, it does some work around there, and then pushes higher.
The return move is all about getting people…shake them out of their new positions. They see the breakout. They go long the market. The market pulls back, they get worried, and they get out. That’s what the return move is all about. Maybe that’s what we’re seeing now. So, I have to say, that’s the way I’m leaning at the moment.
And look, we can get some measured targets out of this pattern. So, when you get a triangle, you can get an idea of where it could go. And you do that by measuring the width of the triangle from the high point to the low point. And then what you do is you bring it across to the breakout point. There’s the breakout point and you project it higher.
So, that’d be the theoretical target. Now, look, sometimes these targets, they fall short. Other times they shoot through and go well and beyond. It’s nothing that you’re back with any certainty whatsoever, but it gives you an idea from a risk-reward perspective about how much you could potentially get out of a move. And so then you can set your risk according to what you could possibly get.
And if we look at that from where we currently are, which is around about here, that’s about 7% higher. If that were to happen, I’d expect that maybe to play out maybe over the next three months, you know, the first quarter of the New Year, that could come into play.
So, look, as I’ve been saying, I think it’s about giving the bulls the benefit of the doubt because we really don’t have a clear-cut and firm reason to say that this market isn’t going higher. There are some flags, but flags aren’t reasons to say the market has topped.
But, look, we do seem to be around a bit of a key pivot point at the moment. We want to see what’s going to happen here. Is this breakout going to hold or is it going to give away?
So, keep your point. I’m still long the market. I’m going to continue to be long the market while my trailing stops are intact. And, look, one thing that’s interesting to do, it was interesting yesterday to look through my own portfolio after Thursday’s falls. Came in after the market closed and thought, “Oh, look, some of these stocks might be looking a bit ordinary after the market quickly dropped that 2%.” Actually, it wasn’t as bad as I was expecting.
So, I’m just going to show you. These are stocks in my own portfolio, and these are very much the same as the signals which I give through my Motion Trader subscription service. So, many of the members who subscribe to my service would have these stocks in their own portfolio.
So, one of the stocks I have in my portfolio is this one here called Ansarada. It’s a tech-orientated company. I’ve got a buy signal in here as the stock is breaking to a new high. I’ve got some initial upside. Got a bit of a pullback during November. But then I’m just looking at it over the last couple of days.
So here’s Thursday’s action just here, this little green bar. Market was quite a bit down 2%. Ansarada barely budged. If anything, I’d say this is a little bit of maybe a bullish pennant formation through here, which then could lead to a rise. I thought I might have come in yesterday and seen it down here. Didn’t happen. So, it’s always a positive sign when you’re expecting your stocks to come off maybe quite a bit, but they hold firm, shows underlying support.
So, look, that’s just one stock. That’s a positive. This is my exit point down there. I give all my stocks plenty of room to move. I’ll show you another one. I’ve had this one since… When was it? May. Just going back here. Found it. It’s a stock called OzForex. This is it here.
So, just interesting to look at, like, how this trade has worked. So, this is where I got my entry signal. I also sent out a signal to the members of my Motion Trader subscription service. Moving averages have turned higher, and the shares have broken above this point here, so broken to a new high. That’s the signal.
And here’s the exit point down there, so giving it plenty of room to move because you can never pinpoint exactly when a stock is going to accelerate higher. You’re just looking for signs that the upward momentum is shifting to the upside. And so just following this through, you can see how the trade took a few months to get going, but then it really starts to get some nice momentum.
Again, there’s pullbacks. Always get these pullbacks mid-trend. Their consolidation is all normal and part of the market. Some more upside developing. It’s interesting when you get these points here where the market starts to pull back.
And this is why I’ve got that wide trailing stop. So, you can easily see. Here’s my trailing stop here. Market comes back. This is barely a blip for me, but, you know, some people see this sort of fall. What was that? That looks like a 10%, 15% fall. Unsettles a lot of people and they sell, but this trend was still intact. Here we are now. And of course, when many people sell, sure enough, quick rebound and off to new highs. This was the price action on Thursday.
So, again, OzForex really held together nicely. There’s no sign whatsoever that this market or this stock is topping. It could consolidate, but there’s no sign of a top in this pattern at this point in time. So, when you’re looking at individual stocks, you can see, if the market is really getting bearish, I would expect to see it showing up in more of the individual stocks.
One more to show you. This one I’ve had in the portfolio for a little bit longer. Came in September 2020. So, I’ve had this one for… What’s that? Fifteen months or so. Here it is here. Johns Lyng Group involved with Strata Management. I just quickly go back to where the signal came about. Again, this is where I got my signal had broken up, hit a new high here.
That was That was a signal to get in there. See, the exit stop trundles along nicely. Just like OzForex, you know, a decent pullback there, but, you know, you’ve given plenty of room to move. You can see off a lot of that, sort of, you know, just ebb and flow that you get within a trend.
There’s something a little bit more interesting. That was heading towards a 20% pullback, I think, when you look at that one there. This is why you need wide trailing stops. I hear a lot of people say, “Look, I prefer 10% trailing stops. I really want to protect my profits.” If you’ve got a 10% trailing stop, you’re going to get movement like this at some point that’s going to take you out.
It’s really hard to stay with the trend with a tight trailing stop. I’ve seen so much money given back or so much potential profit foregone by people trying to cling to their open profits too tightly.
So, the wide trailing stop, I think, it’s a must for staying with these big medium-term trends. And of course then the share price kicks on again. It doesn’t always kick on. Sometimes it hits a trailing stop. Ultimately, it almost always does hit the trailing stop unless the stock has taken over. But you want to stay for these big moves for as long as possible. Here’s the price action from Thursday.
This stock actually went up. So, a stock which had been rising for quite a while, I thought that this was a prime candidate for a bit of a swift move down with some people just wanting to lock in profits. But it’s actually risen on a down day. So, look, it’s a positive signal. I think that, you know, this market is overall looking quite reasonable.
Okay. So, look, let me jump over to the U.S. markets and just have a look at what’s been going on over there. Okay. Just get back to where we were. Okay. So, there’s ASX 200. So, let’s now have a look at the S&P 500. So, look, it’s interesting to look at this. We got a bullish break to a new all-time high towards the end of last year.
We actually had what looked like another triangle pattern which had been forming not as prominent as the one on the ASX 200 but, look, a notable consolidation as well. And then just here on the 27th of December, we got the pop higher. We’ve got a breakout. Look, now we’re back within the range.
Maybe this breakout was all just a bit premature. Maybe this was the thin holiday trading between Christmas and New Year, and it just wasn’t time. It felt like it was a bit early. I thought we were going to see the market. If you remember the last video, I thought the market might have come back during that New Year’s Eve period and then punched higher.
So, look, maybe the market was getting a little bit ahead of itself. But at this stage, anyway, we’ve got to say that was a false break. And, look, I’m still prepared to give the bulls the benefit of the doubt despite this false break because this trend… I’ll just put some moving averages on… The market has come back to the 100-day moving average.
There’s nothing here to say there’s a top in the market. This is an upward trend. This no more looks to be a top than this point here, or this point here, or this point here, or any of them else. It could lead to some consolidation, but it doesn’t look like it’s a major topping pattern that’s going to see the market trend lower over the next six months. At this stage, again, it’s about giving the bull the benefit of the doubt.
And look, if we jumped off every time the market pulled back from a new high, then we’d almost never be in the market because you’d always be going, “Oh, is this it? Is this it? Is this it?” So, giving the bull the benefit of the doubt.
This false break, it does muddy the water somewhat but look, at this stage, there’s not enough to say that we have an imminent trend change taking place. And look, by the way, if you like this video, if you’re getting some value, please hit that Like button.
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Okay. Now, I want to go over and look at the NASDAQ because that’s really interesting as well. So, look, I’m going to tell you the… I’m just going to take that off for now. The biggest point of concern I have with the NASDAQ… Actually, that’s the NASDAQ equa weighted. I want to look at the NASDAQ market cap index. Okay. So, the biggest concern I have with this is that we have bearish divergence.
So, whereas the S&P 500 and the Dow Jones made a new all-time high a couple of weeks ago, the NASDAQ didn’t, neither did the Russell 2000. Ideally, you want to see a healthy market, all the indices will be making new highs together.
When you have one start to lag, you get divergence and that can be a bit of a warning sign and particularly so with the NASDAQ given it’s been such a key driver of the bull market that we’ve had over the last 18 or so months. And if the NASDAQ were to stall, well, then I think then that potentially spills over to the broader market.
Now, I just want to quickly look at one of…well, the largest component on the NASDAQ is AAPL listed in the U.S., of course. And just pull up the chart of this and just see how this is shaping up. And it’s interesting because, look, we’ve had this strong move up in AAPL and we are giving some back at the moment.
And we’re still well above the 50-day and even further above the 100-day moving average. It gives the appearance to me that this market or this stock may need some more consolidation. I’m not seeing a major top in place. Who knows what develops later on?
But at this point, it doesn’t look like there’s a major top in place, but it does look like it may need to consolidate. I’ll put the Fibonaccis on. They’re a little interesting to look at. And, look, this market could pull back to the 38.2% which brings it around to the 50-day moving average, still above the 100-day. Maybe it does something like that and then starts to turn higher again in a few weeks or so.
Full speculation, we don’t know, but it does have that, sort of, feel to it that needs to do a bit more work. And then that, of course, impacts the NASDAQ, which then flows through to everything else.
So, let’s just jump back to the NASDAQ and just look at a few more features on this chart. What’s interesting is that there is quite a well-defined upward trend channel in the NASDAQ. It fits a bit like that. Project up. So, yeah. Look, that’s a pretty good fit. Look, it’s a really nicely defined channel. And a good channel is where you have multiple touchpoints, not just two-point. Two-point trend lines aren’t so valuable because you can draw two-point trend lines everywhere.
So, once you get one, two, three, four touchpoints, a trend channel really or a trend line, in general, starts to be of value. And then we look at the touches on the top side. A little bit of an overshoot, but we’ll call that a touch, one, two, and just recently three. So, look, that’s a well-defined channel. And then we look at it just in here and we’ve got a bit of a flagging formation developing.
So, you can see we’re a couple of points there. We’ve got a couple points below. So, we’ve had the strong move up, and then we’ve got the flagging formation.
So, on the bullish side, a flagging formation is a sign of consolidation within a trending market, so in this case, the market is trending upwards, flag sideways, breaks higher. If this market continues to consolidate, it’s consolidating around the 100-day moving average, also above the trend channel support, and above the flag’s base.
So, if we want to come up with a bullish scenario for this market, it is that looking at AAPL, maybe there’s more consolidation. Maybe it does do something like this over the next…it could be the next two, three weeks. Then we start to get a bounce back near those highs, a pullback, and then we get a breakout. That’s certainly a possibility.
Look, I’ve got to say this is my base case. It’s always worrying when the markets are getting down here. You’re worried that it’s going to break down, but at the moment, as I keep saying, it’s giving the dominant and the established trend the benefit of the doubt until it gives us reason not to give it the benefit of the doubt until it gives us a reason to switch our view.
That’s the bullish side. What we’ve got to watch on the downside, the bearish scenario is that this market does start to weaken off. We do get a test, we get a bounce, and then we get a break. Look, it’s still on the table. It’s very much on the table. At some point, we are going to get that 10% to 15% correction. We don’t know when, but it’s looking to the possibilities, looking for what could happen. And so, look, that’s a possibility that we need to be aware of.
Now, I want to also… Let’s see. So, there are some possibilities. Look, I had an interesting comment on one of these videos a few weeks ago, a viewer came on. And look, you’ll know if you’ve been watching these videos for a while, you know I talk a lot about possibilities, what could happen. And a viewer said, “Hey, what’s all this with this could happen and that could happen?
Why don’t you just say you don’t know?” Well, look, I’ve got to tell you, I start every video from the standpoint that I do not know what’s going to happen. I don’t. Nobody does. Nobody knows what’s going to happen.
Now, this is the interesting thing. Lots of people talk with certainty. I’m sure you’ve seen it as you look over the net. People will say, you know, “The market is going to crash,” or, “This stock is going to go to the moon.” Well, that’s all well and good to say that, but we all like to talk about crystal balls but, of course, none exist.
We actually don’t know. So, I don’t know how anyone can say with certainty that something is going to happen. You can be confident something is going to happen. You can think there’s a high likelihood of something happen, but nobody actually knows.
So, what I found over my years in the market is the best traders and investors, many of them talk about, you know, what could happen. The market could do this or the market might do that. And it’s all about identifying the possibilities, assigning what the odds are, and you hear me saying, “I’m favoring the upside. I think the odds favor the trend.”
So, it’s identifying the possibilities, putting odds on them, and then using strategies to play those possibilities. And, look, so I’m currently playing those possibilities myself. I’m positioned on the bullish side, but I have an exit plan. I have an exit plan for the bearish scenarios, which I know could happen. They are my trailing stops. They are my point of retreat if the market does reverse course.
And look, at the end of the day, I think it comes down to having a robust strategy and then being consistent and being disciplined in the way you use it. That’s really the formula that helps successful traders, investors come out on top and helps them outperform the market over time.
It doesn’t bring them out on top week in, week out, but over a period of time, if you’ve got those strong strategies and you follow them, you stick to your rules, you give yourself every possible chance to beat the market. And that’s what I do. That’s what I help my Motion Trader subscribers do.
And look, if you’re interested in understanding a complete strategy from the buying to the selling to the giving stocks room to move, if you’re interested in getting a complete strategy, and, look, you haven’t come across my Motion Trader service before, come across my website because I’ve got some free training there which goes through that whole strategy process.
The website is motiontrader.com.au. Okay. Look, let’s call that a wrap for this week. Hope you got some value out of it. Please give me a like if you did. And look, hopefully, 2022 is going to be another good year in the markets.
Time will tell, though. Let’s wait and see. Let’s come back next week and try and put all those pieces together again with whatever the market gives us to work with this coming week. Thanks for joining in. Catch 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.