Trade the Trend | Episode 9
By Jason McIntosh | Published 1 October 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 heading?
04:31 Where is the Dow heading?
05:26 Where is the Russell 2000 heading?
06:58 Where is the Nasdaq heading?
10:42 Where are financial stocks heading?
12:14 Where is the All Ordinaries heading?
15:59 Where is Vista Group [ASX:VGL] heading?
18:58 Where is Viva Leisure [ASX:VVA] heading?
20:24 Where is Charter Hall Retail [ASX:CQR] heading?
23:22 Where is Webjet [ASX:WEB] heading?
Where to invest now?
Looking for ASX stocks to buy now, as well as off the radar ideas most people don’t know? Our algorithms scan the stock market daily for medium term investment trends. We then tell our members precisely when to buy shares. And most importantly, we tell them when to sell.
If you’re ready to get started, try a no obligation FREE 14-day trial of Motion Trader, and see what an algorithmic trading approach could do for you.
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 1st October 2021. As always, this is a general commentary and doesn’t take your personal situation into account.
Okay, with that said, let’s jump into the first chart. Well, we’re going to start with the S&P 500. And jeez, hasn’t it been a fascinating couple of weeks?
It’s really developing into a bit of a tussle between the bulls who like to come in and buy the dip and those with more bearish ideas on where this market is heading.
So, look, last week was your classic buy the dip. So, let’s just zoom in on this chart a little bit. So, you know, this rally up through here last week, that’s your classic buy the dip, and the market hit the 100-day moving average on the S&P 500.
And that was a prompt for this buy the dip to engage. And, look, this buy the dip strategy, people become so accustomed to it during a bull market. Like, when you look at all these points through here, you know, the market coming back to the moving averages and quickly snapping back.
And buy the dip works really well as the market is rising, but it can lead to trouble when the market becomes vulnerable to weakness and in lower levels. And this is what we’re seeing now.
And really, I think that the failure of this advance that we had to hold those gains and then to consolidate and move higher, it really underscores if there is some underlying weakness in this market. And here we are again.
We’ve rolled back over and we’re testing these lows. So look, this is the Thursday night Australian time, Thursday day in the U.S. That’s the first close we’ve had of the S&P 500 below its 100-day moving average since, look, all the way back here.
You’ve got to go back to October to find another close below the 100-day moving average. Prior to that, we’re back down here just in the early stages of the recoveries back in May when the market was below the 100-day moving average.
So look, it is a significant thing to be aware of. And this brings two important zones into focus. So, let’s look at those now. So, we’ve got a good support zone between 4250 and 4220.
So, just drawing that in, it’s around about there. And that just picks up this low here, a high there, another high here, there’s a high there. So, this is probably where I think the market is likely to head mainly over the next week.
We could see it come back towards this support. It’s quite a significant support level. And then if we look past there, the next area after that would be the 200-day moving average.
So, let me just change this over from a 100-day to a 200-day because this is a significant moving average, which a lot of our players in the market keep an eye on. So, there’s our 200-day moving average down there. That currently comes in around 4130.
So, look, so far, this is a 5% pullback, which is, look, it’s nothing out of the ordinary in an overall upward trending market. I think the potential is there for this to extend towards 10%.
So, look, let’s just put some measurements on this to get our bearings. So, if it gets back to this support, well, that takes us down to around about the 7% mark. The moving average is down around 9%.
You know, is there a possibility for it to get down there and overshoot? Well, I think there certainly is. So look, I think, at the moment, we’re looking at something between maybe 5% and 10%, possibility of an overshoot to 15%.
That’s kind of what I’m thinking with this market at the moment. You know, look, it could stabilize around current levels, but this week close suggests that it does have more in at this point.
So let’s look at the Dow. Come over to the Dow, and look, it’s a similar sort of setup. So, the support that I’m looking for in the Dow comes in around this, sort of, mark through here. So, 33,600, 33,200. It’s 33,600.
Yeah, it looks around about there. This is probably the support to keep an eye on the Dow. And it’s interesting because it also comes in around the 200-day moving average.
There’s quite a bit of support to underpin the market around here. So, it’s going to be key to watch this week to see whether if the market gets down there, does that level start to hold?
Do we see some sort of bounce, or is there going to be more follow-through selling again? So, the vulnerability is definitely the downside in this market. So, look, it’s time to keep a close eye on how it develops over the next few days.
The Russell 2000. So this is the smaller cap segment of the U.S. market. We’ve been watching this big trading range really for much of this year. It stretches back into February.
The market here has been stuck in the mud in this big range. What’s been interesting over the last few months is it’s now starting to coil into an even smaller range. So, a range within the range.
So if we draw that trendline there, and we can do another one through here, let’s get rid of that larger range. So, it’s coiling within a larger range. So, the hope has always been that this market would ultimately break to the top side, that would get a move out of here and hit higher.
But look, we’ve got to entertain the possibility that that’s not going to happen and that maybe the break will come to the downside. That would be quite negative overall for the market because then it would leave this big topping pattern in place.
So look, it’s too early to call this at the moment because it is still range-bound. But it’s just things we’re watching, things to keep an eye on, things to be aware of.
And we want to watch this closely and see how it develops to give us clues to what the overall market may do and whether there’s a potential for the current pullback to turn into something larger. Not my best case at the moment, but you’ve always got to have an open mind as to what could happen.
So jumping to the NASDAQ. NASDAQ has been, you know, quite weak compared to the S&P 500 and the Dow. Like, it’s broken down below this low from a couple of weeks ago. Closed on those lows.
Look, it is kind of leading the way down. I think the support zone for this, quite a good support zone, comes in here. So, the support there is around, say 14,240 to 14,140 kind of looking in there.
And I think that’s probably around 7%. Could it be? Let’s have a quick look. What’s that? 7.5% almost 8% down from the high. Look, I think the odds are we’re going to test that.
If it got through that, then you’re looking at the moving average. The moving average is currently coming in around, what’s that, 13,800. If it got down there, that is…well, there’s that 10% again.
So look, there is that prospect that we do come down to the 200-day moving average. Look, the 200-day moving average in itself, if the market were to come down and touch that, that’s not an overly big deal in the scheme of things.
In a broad bull market, you’ll often find the 200-day moving average touched maybe once every year or two. We haven’t been down there for a while. So, this could all still well and truly be within the bounds of a pullback within a broader upward trend.
And it’s interesting, just having a look at some of the Fibonacci levels while we’re here. So, you may know that I like looking at the Fibonacci levels to just give us a good guide as to where the markets could pull back from.
We just measure this move up. You can see that 50% retracement is right within this support zone here. So, look, it’s going to be interesting whether we can get a bounce off there, whether it holds.
The 61.8% is down near the 200-day moving average. So, I think it could get some sort of base forming around here. Too early to say. We need to let some more price action develop just on these Fibonaccis.
They are interesting, but they’re quite discretionary in how you apply them. A lot depends on where you anchor the starting point. So, like, if we were to use this point here, you get a completely different set of levels.
So, I’ve used this point because my reasoning is that this here is, like, this is all part of a zigzaggy type consolidation. So, I’ve used the starting point of the next leg of the advance.
So, I’m calling this a starting point of the advance, not this here. But, you know, I see people drawing Fibonaccis off all sorts of things. You know, some people will use, you know, this point here, and then they’re projecting, well look, if it comes back 50%, we’re down here.
And it can really throw you off. So if you’re interested in this sort of thing, go spend some time, sort of, studying where you use your starting point because it makes all the difference.
I don’t use this in my system trading. It’s too discretionary. It’s a bit interesting, but for my actual trading decisions, I’m not basing them off of Fib levels.
Okay, so look, with that said, sounds a little bit on the negative side.
But I want to give you a positive on this at the moment. So, one of the things which makes me optimistic that this isn’t the start of something bigger is that some stocks and sectors are actually looking quite good on the charts.
So, for example, the financial stocks in the U.S., let’s just get a chart of that. That’s an ETF XLF, U.S. financial sector ETF. And what’s interesting here is that this market, it’s quite similar to the Australian financial sector.
This market is actually quite close to its 52-week highs. So, it looks very different to the S&P 500 and the NASDAQ. And if we were heading into a larger bear market, I’d expect that the financials would be really breaking down as well.
And that’s what we saw during the start of the GFC. The financials led the way. The financials were weaker than the S&P 500. So, when the financials are strong, it suggests to me that the underlying economy is strong.
So, that’s why I don’t think this is the start of something really big and bad. We’ll keep watching this for clues. But at the moment, I think this is looking…look, this looks solid.
And then I’ll look at some of the…I’m going to show you some stock examples in a moment in the local market, which are looking strong, and which are showing signs of breaking out.
And again, they’re going to give us some clues as to what could be happening later on. And look, by the way, if you’re getting some value from this video, please hit that like button just below because it tells YouTube that the videos are worth showing.
So, then YouTube shows them, and more people watch them, which means I keep making them. So, please hit that like button if you’re getting some value.
all right, local market time. Let’s jump over to the all ordinaries.
Now, all ordinaries, look, the big thing which we’ve been watching here is this support zone. So, let’s just draw that in first. So, the support here is… What is it? Where did I spot it? It’s 7480 to 7420.
And it’s been a real battle line, a real battle line over the last couple of weeks. So, we had, you know, the big buy the dip rally. And this was interesting.
So, I was telling you about my hedging last week. So a couple of weeks ago, I put some hedging on. I think I put my hedging on here. Had the big fall.
And I was talking last weekend, look, I resisted the urge to take the hedges off and take a quick profit on it because the idea of hedging is to protect the portfolio in case something… If this keeps unwinding, I want some protection there rather than trying to snare a quick profit.
A strong rally last week, and look, on this particular day… Where is it? Just here. So, let me just blow it up a little bit. Yeah, I think that might have been… When was that?
I’ve forgotten what day it was. Now, it might have been about Wednesday, Thursday last week. I actually thought of taking the hedge off. And I was watching it through the day.
And my thoughts were, look, if the market closes strong, I’ll cover it near the close. If it starts to weaken near the close, I’ll hang on to it. And sure enough, it started to weaken on the close and closed down below the 50-day moving average.
So, I kept the hedge on. And I’m glad I did because the market has fallen and I’ve still got the hedge. Rallied strongly on Thursday. But there was no need to take the hedge off on that because there’s just so much resistance above the market.
It was still worth holding on, and now we’re down again today. We’re right on that support. So look, I think the odds favor…look, we may get some sort of bounce off there because it looks quite oversold today hitting into that support.
It might need a bit of a run-up to break through it. But by that, I mean, so maybe it’s a sideways gain and then down. But look, just based on what I’m seeing in the U.S., I think odds favor that we’re going to break this support.
And then that would bring in the focus of 200 moving day average, which is currently around 4130 just here. So, it’s not far below that support, but that’s where we’re going to look at next, and that’s around 7%.
The next support after that is down around 7,200. I haven’t put that on the charts, so as not to clutter it too much. But look, I’ll just quickly put it in. The next support is around up there, around about 7,200.
It picks up these lows through here. Picks up that high there as well. So, I think that’s about 9%. Look, that’s about a 9% move if we were to get down there.
So look, these are the points to watch in the market?
Yeah, look, I think lower levels are looking likely…at the moment, the way things stand, the current price action would suggest some lower levels. So, look, I think it would be interesting just to look at a few local stocks, which don’t have this profile just to show…
Just put some balance to this, so it’s not all doom and gloom. And if it was all doom and gloom, I’d be expecting pretty much everything to be looking pretty ordinary, but that’s not the case. So, there’s a real theme developing in some of the signals which I’m seeing develop.
So, look, let’s look at these first ones, a company called Vista Group. It’s New Zealand-based. They’re involved in cinema management technology. Really interesting business. And so let’s have a look at this.
Okay, there’s the COVID crash there. So, COVID was a disaster for cinemas as we all know. But what’s interesting? So let me just draw the basing pattern first. So, firstly, it formed this big basing pattern over… How many months?
Like, maybe over about six months. So, this was the first interesting point. We had the breakout here from this little pattern. I’m actually going to change this moving average back over to a 100-day because that’s what I use when I’m looking for stocks.
I’m using a 100-day moving average, not a 200. A little bit more responsive. So, yeah, so you can see where the moving averages cross here just after they’ve broken out of this basing pattern.
So it’s always nice when you can see, you know, moving averages and a basing pattern working together. This little circle here, that’s where I got an entry signal.
So, just on my Motion Trader service, which I operate, that’s where I sent a signal out, putting this as a buy. And just by the way, if you’re interested in how I do analyze stocks, you’ll find a link to a free training series in the description below the video.
And in that series, I just talk about like how I buy stocks, the entry signals I use, the exit strategy, risk management, all that sort of thing. So, if you’re interested in that, check out the link to the video series below this.
But back to this chart. So, that was the entry point. And then we’ve got another formation here. And so another one of these contracting trading ranges that we call a triangle, really interesting and really reliable patterns as well.
So, look, we got another breakout. In August, we’ve gone sideways, bid up, had a return move. Quite common. And in the last few weeks, we’ve been rallying again, and here we are today.
We’re only just a little bit below our 52-week high. So, here’s my point about not everything in the market is looking bad. So, that’s why I don’t think that this is a big bear market developing.
I think it’s a pullback within a bull market. And so, I’m seeing these positive signs and these reopening star trades. So, this is the first one. Interesting stock. Well, I’ve had buy signals on that recently.
Might be interesting to see what it does here over the next few days with this volatility, whether it can stabilize here, and then break higher again, and it’d be an interesting entry point for someone looking at a stock like that.
Another one I want to quickly show you is a company called Viva Leisure. It’s a gym operator, and this has had a lot of… They’ve got a lot of gyms. Been growing really quickly, and it sounds like, you know, all the stocks in this COVID-related theme.
Terrible period for it during COVID. You know, all the gyms shut down and the like. So, let’s just draw in this downward trend channel. It’s broken up from there, which is positive, and then we’ve got… Let me see. There’s a resistance band between around… That looks about it there.
So, I’ve got this overhead resistance through here. You can see these lows it picks up, and then you’ve got the high there. So, some work is done through there. Another pick up there.
You can probably carry it across to here as well. And it’s just bumping up against it now. The moving averages haven’t crossed yet, but they’re turning. They look like they’re going across pretty soon.
So, I haven’t got a buy signal on this one yet, but it’s one of the sort of things I’ll look at. It’s on the radar. It’s had a strong move up. It’s consolidating. It’s really holding in well during this market volatility.
So again, it suggests that maybe there’s a trend change happening and maybe there’s an opportunity developing here where, look, if this continues to go sideways for I don’t know, maybe a week or two.
Then we start to get a break above this level here up into this zone, it could be a sign that this is a stock which is ready to go as well.
So, just got a couple of more to quickly run over.
So, this one here, Charter Hall Retail. So, this is shopping centers, so you can really see this theme developing. We’ve got cinemas, gyms, shopping centers. Yeah, the bottom fell out of this during COVID because no one was going to shopping centers.
And we’ve got this big, sort of, range, which has been forming since October last year. And within that range, we’ve got another range. And this is the one which I’m most interested in.
So, we’ve got one of these contracting trading ranges, the triangle, which I like so much. Probably draw it in there. So, we’re just attempting to break out of this pattern now. And this is really interesting.
Like, here’s Friday’s action. Now, this is a day the market is down…the market is currently down 1.8%, 1.9%. This stock opened, it’s traded lower, and now it’s trading above its open, and it’s only down slightly for the day.
That is really positive price action. It shows a support below the market for this stock. The market is resistant to it selling off. I think that this is on the verge of really having a good breakout.
For me, if it broke above this high here from Thursday… This is product line there. Look, a break above there, that’d be enough for me to say, I think this on the move. And you can do a measured move out of these ranges.
And you measure the width of the range and then you can project that from the breakout. And it gets you up around there, up to around, where’s that, 435 thereabouts as a… Like, this is like a… It’s a target, but I don’t use targets for my trading, but it’s interesting nonetheless.
Let me just measure this. What is that? That’s about 10%. So, you got potentially a 10% move there. Pays 5.5% on dividends. And my style would be, if this started to break up and if it got up to there, the trend is presumably still up, so you let it run, and you just don’t know how far these things can run.
You know, this could well and truly run. It maybe grows back and, you know, heads back to its old highs. We don’t know, but that’s why you let your profits run because you don’t know how far they can run.
And this is shaping up as a good risk-reward trade. Yeah, look, this little point here. This is where I got my Motion Trader members in. You can see the moving averages cross, broke to a 70-day high, that cleared all these levels here.
So, that met the criteria. And we’ve been collecting this 5.5% dividend through here while it’s gathering steam hopefully for the next leg higher. So, we’ll wrap up with one more, Webjet.
So again, you can see the theme around the travel now. Same sort of theme. It’s really giving interesting clues to what’s going on in the broader market. So, what are they watching in Webjet is this resistance band through here.
Actually, let’s bring that down a touch so we get… So we’ve got that high there as our top, and we’ve got this high here as our base, collects this point through here. And it’s been in this big range.
So again, it’s been in this holding pattern. It’s been in this holding pattern through here, much like the CQR, the shopping centers. Been in that holding pattern for a while. Same sort of thing we saw also in Vista Group.
And we’re now just breaking up above it. Look at the price action today. Same as with the shopping centers. Market’s down almost 2%. This is actually up. It’s higher than yesterday’s close.
Sign of real relative strength. I think there’s something going on with this whole theme in general around, you know, these reopening type trades. They’re gathering momentum at a time when the all ordinaries is coming off, which makes me think the all ordinaries move…again.
I don’t think it’s the start of an overall bear market. I could be entirely wrong, but the evidence I’m seeing at the moment doesn’t support that. Look, interesting stock to watch. Moving averages across there.
You can see that little dot. That’s where I got my members in recently. Yeah, look, interesting things. I’m seeing a lot more stocks like this as well. You know, these smaller stocks, players in the travel industry, other stocks like VISTA and Enviva.
So, it’s interesting times. So look, this is one of those difficult periods in the markets. I continue to think that, as a pullback, not a start of a bear market. But look, we’re just going to be guided by the price action.
I think it’s a time for following the trading plan that you put in place when the markets were calm and you had rational thought and clear thought about what you wanted to do.
And I think it’s all about knowing where your exit levels are in case things continue to unravel or the stocks you have caught up in the unraveling. And lastly, I think it’s a time for keeping a cool head.
So, with that said, let’s call that a wrap for this week. Hope you got something out of it. Please hit that like button if you haven’t already if you’ve got something good, and I look forward to coming back, and we’ll try and put all the pieces back together again next week. Thank you for listening.
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.