Trade the Trend | Episode 4
By Jason McIntosh | Published 27 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?
00:35 Where is the S&P 500 going?
01:20 Where is the Dow going?
03:06 Where is the Russell 2000 going?
04:54 Where is the All Ordinaries going?
06:25 How to hedge with BBOZ?
09:50 Where is gold going?
11:15 Is Newcrest (ASX:NCM) worth buying?
12:24 Is Smartgroup (ASX:SIQ) worth buying?
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 27th of August, 2021. As always, this is a general commentary and doesn’t take your personal situation into account.
They’re going to cover the latest developments in the market and focusing on some of the opportunities and trends that I’m seeing. And if you like what you see, please hit that like button, let me know you’re getting something useful.
And also, leave me a comment in the section below and let me know which markets or stocks that you’re interested in, and I might be able to cover them in a future episode. All right. Well, with that said, let’s get into the first chart.
So, we’ll kick off with the S&P 500 as we usually do, and, look, it’s been an interesting week.
So we have last week, we were just here on this day here and like clockwork, the buy the dip traders have come in right around this 50-day moving average, and pushed the S&P 500 up to a new all-time high.
So look, that’s pretty bullish price action. It keeps that bullish case in play. Look, for a while I’ve been talking about my concerns with the lack of breadth in the market and I still have those concerns. But, at this stage, we need to go at the trend and the trend is clearly pointing upwards.
So we’ll go over to the Dow and same sort of price action but not quite as convincing. So for the last little bit, we’ve been watching this zone through here, these previous tops.
And last week, we were talking about how to break them down below. Look, since then, we’ve hit that 50-day moving average. We’ve broken back up. But look, it’s not a very convincing sort of move back up.
We haven’t been able to make this new 52-week high here like the S&P 500 had this down day yesterday. Looks like we’re going to come back and maybe retest this level.
I think the key now is to watch what happens around this low here. If the market breaks below there, that means it’s going to be through this area, through the 50-day moving average, below the previous low and that’s not going to be a good sign.
That’s going to then suggest, look a retest down here at the 100-day moving average. And then that’s going to bring these lows through here into focus. So that’s the risk.
It’s not the best case at the moment. The trend is still up we need to stick with the trend and give it the benefit of the doubt. Just pointing out the risk, trying to work out where’s our risk with this whole market at the moment?
And look these are some of the key levels to watch. We’re watching here around those previous highs. We’re watching the 50-day moving average which is just below it. We’re watching the low from last week here and we get through there well it’s really opening up the potential fall for down here.
Okay, let’s jump over to the Russell 2000 quickly, the small-cap index. Look, it was really teetering on the brink here last week, down around these previous lows and it bounced.
So that’s, look, that’s good. It gets it out of the immediate danger zone. It’s back in the middle of the range. You know, from here, it could still consolidate and break higher.
It’s not outside the realms of possibility. The, look, as I keep going on about with this downside risk, I’m concerned the moving averages are flattening and maybe starting to roll.
If I just looked at this chart on its own in complete isolation, I would say, “Look, maybe there’s a bit of a rounding top formation sort of happening here.”
So you can sort of see, you can see how these were making those highs and we start rolling over and I wonder if…and I wouldn’t be putting this on as a trade at this stage because it hasn’t broken down but I’d be wondering if it’s going to do something like that.
That’s not what we want to see in the stock market. And this market is not going to do it outside…the Russell won’t do this independently of the Dow and the S&P and the NASDAQ, at least you wouldn’t think so.
So the other markets don’t have that set up at the moment. So hopefully this is an outlier which doesn’t come in but, again, it’s one of those things got to be aware of.
There are other things that could happen other than the market going up. So being aware of them helps to, hopefully, helps to put us ahead of the game hopefully.
So let’s jump over and have a look at the other local stocks. So I’ve left on the trend channel we’ve been looking at in previous weeks. Last week, we were down here in the middle of the range.
We’ve had this pretty soft, uninspiring rally over the last few days. Look, you know, it’s not convincing, but you know, the trend is still up. This is its support area where we’re watching, you know, in around these previous highs coincides with where the 50-day moving average is.
Look, if we get a little bit of turbulence over the next few days, and there is a FED meeting going on on Friday in the US and over the weekend. If we get some turbulence coming out of that maybe we do retest this level here.
If that breaks, well then we’re looking down to the bottom of this trend channel down around 7550. So, look, that’s a possibility. Some of these levels start breaking in these markets but then we start looking at the possibility of a more drawn-out consolidation going on because we haven’t had one for some time now.
So it’s going to happen at some point we just don’t know when it is. So whilst the trends up, we stay with it. As we see warning signs, we just get cautious. We don’t preempt them but we just get a little bit cautious and keep an eye out.
Now, I had a comment under last week’s video asking about how to hedge and asked about this particular stock, the BetaShares Bear Fund, BBOZ, an ASX listed fund. And so, what this is, It gives you roughly two times leverage.
So if you out in…you buy $1,000 worth of stock, it’ll give you a short exposure for about $2,000 worth of stock, but just check the BBOZ website for all the details on that. Now, this isn’t the sort of thing you’d want to hold long-term.
It’s really just a short-term positioning tool and I’ll show you why you wouldn’t want to hold a longer-term. Let’s jump to the weekly chart quickly. And it basically trends down over time because of the inverse of the stock market.
The stock market naturally has this tendency to rally over the longer term. So a fund like this, particularly when it’s double leveraged is going to work its way down to pretty much nothing over time.
But for short-term positioning, it can work. Like, you know, this is during the COVID crash and this was another bout of volatility we had. So there are times where it can be useful.
Now, it’s an easy way for a retail investor to hedge part of their portfolio. The disadvantage with this is it requires quite a bit of capital. So say you’ve got a $100,000 portfolio, you’d need to buy $50,000 worth of BBOZ to hedge that portfolio, you know, approximately.
So you need to have a lot of capital on the sidelines to do it so it’s not the most efficient way. So a professional investor or trader, look, I’ve used this in the past but it’s not ideal.
And ideally, I’d be using maybe a futures contract or a CFD, where you’re getting more leverage so you don’t need to put up so much capital to hedge the portfolio itself. Look, timing is always tricky with hedging.
If you hedge and the market rises, well, then you’re giving up profitability, you’re giving up some profits. If you hedge after the market falls and then you get a rebound, well, then you’re losing again.
So it’s not a free lunch, this hedging business. It can be helpful. It’s an insurance type policy, and you know, the loss is basically your insurance premium that you pay to get that coverage but it’s tricky.
It’s not quite as simple as, “Oh, the market’s going to fall so I’ll put some hedging on and protect my portfolio.” You got to think well, when do you let that hedge if the market keeps rising?
Or if you put a hedge on and the market rebounds, how long do you hold that hedge before you close it out? So there’s a bit of strategy that needs to go into how you’re going to apply this sort of product.
I generally just trade long. I do hedge occasionally but look over time I’ve decided for me I’m better trading long using my exit stops and trying to get the big medium-term trend in the market rather than trying to, you know, sidestep in and out of hedging positions.
But, it’s for everyone to make their own call. Some people can hedge really well so it’s up to whatever you want to, you know, what you’re trying to achieve.
So, I thought we’d just have a brief look at gold. Let me just find it down here in my commodities. Here we go gold. This is behaving really well. I’m really happy with how gold’s stacking up.
Just quickly, let’s just…this is a weekly chart at the moment. So let’s just have a quick look at the weekly chart and this is looking really good, I think. I think this is a sort of pattern which really does have the potential to sort of, like, make its way up in that direction there.
Let’s jump over to the weekly, not the weekly, daily. The daily is what I should say. So yeah, we spoke about this fall here a couple of weeks ago and my thinking when we were here, “We might sort of, like, make our way back down and retest.” Actually, had quite a good rally.
So it opens up the possibility that this is a double bottom forming. And I think that this potential has…you know, it really does have the potential to be a strong base to launch gold quite a bit higher over time.
So you know, we’re going to have to keep watching it. It’s not done and dusted by any stretch yet. But yeah, look, I think this is looking encouraging.
I don’t think there’s an immediate need to get in because when you look at some of the gold stocks, so let’s just say we have a quick look at Newcrest. Look, you know, the moving averages are down, the share price is down here.
It’s the same with Evolution, it’s the same with North Star. The timing doesn’t look right. It looks like… I think gold’s going to take a little bit more time to sort of build out this base before gets going.
But, the good news is that this is looking encouraging. This is, you know, I think this is one of the…let’s go really long term, I think is one of the best-looking commodity charts out there.
It’s looking really strong but just how much longer this space needs to go on for, you know, does it need to…? It could continue on through here, that’d be almost double the timeframe, but just like chopping around going sideways and then launching higher.
Hopefully, you never know. Things can break down, it can change. But at the moment, it’s looking pretty encouraging but not for today. We’ll just keep an eye on that one.
So I thought I’d just finish up just an interesting stock I saw through the week. I just thought I’d bring up and just have a quick run over. It’s a stock called Smartgroup. Look, what do they do?
They are involved in salary packaging and fleet management so it’s not a particularly exciting business but it’s an interesting chart structure. So yeah, it was really a boom stock during the middle 2000s, and then we’ve had this big (A) (B) (C) zigzag correction and the (C) was a complete washout. You can see all these gaps on the way down.
But then since then, it’s sort of been ratcheting its way up. And in the last what, five, six months, it’s been doing this and just now starting to accelerate and breaking above this previous high. So let’s just duck over to the daily chart. So it looks to be just here. It just looks to be starting to build some steam.
I like this sort of the way its sort of like, you know, it rallies and pullbacks, it rallies, pullbacks, and now it’s gaining steam. Quite good volume went through here so there’s an increase in volume, that’s a good sign, break into a 52-week high, that’s a good sign.
What I’d be watching from a short-term perspective, I’d be watching there. If this is sort of like starting to accelerate to the upside a little bit, I’d expect it to…I wouldn’t want to see the price come back below there.
And what we could see, we could see something like that over the next few weeks. You never know, may not pan out like that. But that’s sort of the potential this sort of setup gives you.
And you’ve got a pretty clear sort of level to say, “Okay, well it’s not doing that. It’s not far from where we are now.” So you’d say, look, it’s good potential upside if you use some sort of an exit point like that for a shorter-term tactical sort of position.
It gives you potential to get into a stock with the upside potential but without a whole lot of downside. So yeah, interesting food for thought about how some traders approach the market with the way they enter stocks and then give themselves that ability to ride a bit of a trend.
So, okay, well, let’s leave it there for this week. Of course, everything is general advice, nothing specifically tailored to you.
And look, go out there find some good trends this week. I hope you enjoyed today.
Please give me that like if you found it useful because it tells YouTube that people like it and start showing it and people watch it I’ll keep making them.
So have a good week, good trend finding, and I’ll 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.