Trade the Trend | Episode 11 

By Jason McIntosh | Published 15 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?

In this week’s edition: 

00:00 Intro

00:21 Where is the S&P 500 going?

11:05 Where is the Russell 2000 going?

13:45 Where is the All Ordinaries going?

17:11 Where is uranium going?

20:10 Where is copper going?

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.

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Transcript

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 15th October 2021. As always, this is a general commentary and doesn’t take your personal situation into account.

Alrighty. Well, with that said, let’s jump into the first chart. And, by the way, I’ve got an interesting stock for later on so make sure you stick around for that. Okay. The S&P 500. Well, look, it’s been a really interesting week.

The market has been pretty much sticking to the script that we told about last week. So, what we were speaking about last week was around the…talked about how the immediate vulnerability of the market seemed to have dissipated.

And what we were looking at, we’re looking at this support sign. So let me just get this support in between $4,250 and $4,220. So it comes in around about there.

So the market’s failure to get through this level really weakened the energy, really the energy that the bears had to try and try and run this market lower.

And when one side loses, you know, the force to their move, you get a snapback in the other direction. And that’s very much what we’ve seen. We’ve seen some follow-through this week.

Now, what I want to look at is a really interesting chart pattern has developed. And let me just highlight the area here first. So, it’s just in here. This is the area which I’m going to talk about but I’m going to jump over to the hourly chart so we can see it in more detail.

So let’s jump there now over to the hourlies. So, let’s just change the scale a little bit, and let’s get rid of this big green circle now. We don’t need that there right now.

So, this is called a head and shoulders pattern. So let me just highlight some of the key areas. It’ll make a little bit more sense. So this here is the first shoulder, and this is a classic chart pattern.

It’s probably one of the most famous chart patterns there are. This is the head and this is the other shoulder. I first learned about this in, oh, look, it would have been back in 1991 back in the dealing room.

And so, look, so you got the two shoulders and you got the head. This is called an inverse head and shoulders because it’s upside down. You can get these as topping formations as well whereas, you know, the head will be above the shoulders.

So, this is the pattern, and then you draw what’s called the neckline and it joins up above the highs from where those shoulders are.

So you draw that there. Now, the way this pattern works…well, the theory with this pattern is that you get the sell-off down to a low point then you get the reactive rally back up, and then the second shoulder is formed as the market falls again but it doesn’t reach…can’t break beneath the previous lows which, in this case, is the head.

And then you get the reaction back the other way breaking the trend line and breaking this high point here.

And now, look, the theory with these patterns are that you can get a measured move and you measure it from the tip of the head to the neckline, and then what you can do you can project that upwards. So you get a move up like that.

So, this is all the theory. This isn’t a forecast or prediction of any sort. This is how the theory works. So carrying with the theory. So you get the breakout as we’ve got.

It often gets called a return move which, look, it will be interesting what happens tonight. Do we see a little bit of weakness in the U.S.? Does it pull back a little bit?

And then from there, then you get the move upwards. So, that’s the theory of the head and shoulders pattern. It’s going to be really interesting to see how this plays out maybe over the next…probably the next week will tell us quite a bit. Maybe the next couple of weeks.

Look, I’ve got to say out of all the charting patterns I look at, I’ve found this over time to be probably one of the less reliable of the ones I look at. It’s a lovely theory. It looks good in the chart. It doesn’t always play out.

Sometimes it plays out beautifully, so it’s going to be interesting to see what happens with this one.

Look, I don’t know. I don’t know whether that means we’re heading up here by any means, but it does give more confirmation to this rebound that we’re getting that the bears are currently in retreat and the bulls currently….you know, the bulls have the ball and they’re running up the field.

So, I think what’s important to look at now, what’s going to be telling here is what happens when we get up around this resistance. So, we’re going to get some resistance points for the S&P around about there.

That’s going to be the market look at over the next few days. And so, look, that’s coming in around $4,470 to the $4,480 thereabouts.

And if we get a break of this, if the market can break through that resistance point, well, then the odds really start to increase that this really is all over and we’re heading up to new all-time highs.

That’s getting ahead of ourselves at the moment because we haven’t got there. That’s the first point of call now. We need to watch that resistance band, see if the marketing can get up there.

Now, I saw a really, really interesting graph during the week. I want to show you now It’s from a service called Sentiment Trader. Now, they’ve got a free email they send out each night.

Really worth subscribing to because they got some great charts that they provide. And so, I want to go down and show you this one here. I saw this thing. It was yesterday. Yesterday it turned up in my inbox.

So, it’s this one here. So, let’s just read this. This is about big bearish bets. So, over the past week, volume in the inverse ETFs. So, these are the bear market ETFs. These are the ones you buy, and if the market falls, these ETFs rise in price.

So, there can be a way to play, you know, a falling market or to hedge your portfolio. So, the past week, volume in these ETFs accounted for more than 1.75% of total NYSC or New York Stock Exchange volume. And that’s a record high.

So, here we are here. Here’s the market where we currently are and this is how much of these ETFs are in play. Interesting to look back. So, this goes back to 2018.

So, this was, you know, quite a meaningful pullback in the market. And I’m not sure how. Look, probably around the 10% sort of mark, and we had this level of ETF exposure.

This was quite a big pullback we had around the end of 2018. I think it was around the 15% sort of mark, for memory, roughly. And, you know, we had this sort of level, the COVID crash, you know, the level of buying and this fund got up to here.

This is a 10% correction here. That was the level of buying. Now, look where we are now. This is a 5% to 6% pullback. And the level of hedging is it’s extreme by historic standards.

And so, look, this is a concern if you’re looking for the market to continue falling because it shows whenever all the retail traders and investors, they all go to one side of the ship, it tends to be when the market starts to move back in the other direction.

And it’s the same for professionals. A lot of professionals get emotionally, you know, wound up in these pullbacks as well and get over hedged.

So, if anything, this is potentially going to be some sort of a tailwind for a rebound, well, if these traders start to cover and sell those ETFs and we see this decline.

That means that the fund will be going in and buying futures contracts to, you know, close out these positions. Interesting one to watch. Okay.
So, let’s jump back over to the charts.

Okay. So, I’m going to go to the daily chart now. And this is what we’ve been seeing through here, really. This is potentially some of that ETF unwinding. And that is the fuel which could, you know, launch the market up here, so it’s one to watch.

So jumping back out of the daily. Now, I think it’s important to remember that I don’t think the market’s out of the woods at this stage.

While we can see there is definitely a potential that we do see more of a rally, and I think we do need to give the bullish case the benefit of the doubt because, you know, the dominant trend over all this period for many months has been upwards and there’s nothing here to say that a lasting top is in place.

So, that’s why I give the bullish side the benefit of the doubt, but I’m still mindful that this may not be over. It’s quite possible like a bearish scenario is that we do see a bit more short covering.

We do get the market come back up around here maybe just below the previous highs then it starts to pull back, some sort of reactive bounce, and then it has another break, another crack at this support zone, and actually goes through next time.

Look, that’s still on the table. And just looking at this from a percentage perspective like a 15% fall is down here. So, if we did see something like this develop, well, I think it’s still well within the bounds of what is an acceptable pullback within a larger bullish trend.

So, as I say, give the bulls the benefit of the doubt. That’s my base case.

You got to get the bullish case the benefit of the doubt but be mindful that it’s…I think it’s worth still being very much cautious on this market because we do have the potential for this still to have more to play out, look, over the coming weeks, maybe over the next month or even two.

Now, I want to jump quickly over to the Russell 2000. Haven’t looked at that for a while and that’s been…Look, some interesting things are going on here. I spend too much time on this but I’ve been watching this range which has been coiling up.

And this market is actually now…It’s actually getting close to breaking to the top side. So, look, this is a giant jigsaw puzzle, these markets. We looked at the S&P and there’s some various scenarios in play here, in play there.

And then you got the Russell which is now showing the possibility of breaking out from this pattern. Then after that little triangle pattern there, you have this broader range that has been for the last…look, for much of this year, for pretty much around nine months now.

Now, if a bullish scenario were to take place and these were to break higher, so if we break out of this triangle here, test up the top of this range, if this range breaks, well, the count out of this, well, the bullish projection out of this would be the width of the range.

So, if we just move this range upwards, so you then expect a move like this. This should be the theoretical moves out of these measured formations.

So we got out of the triangle, bounced off the top of the range, pull back, and then, you know, market makes its way up there over a month or two or whatever the timeframe may be. It’s possible.

It is within the realms of possibility that that’s something which could shape up. And that’s a 15% of the upside. So, look, we really are at, you know, a bit of a pivotal point in the market as to where things are going to go.

Are we going to see this consolidation continue and turn into, you know, 10%, 15% decline, or are we at the point where the bears are now in retreat and the bulls are back in control and we’re going up to new highs?

So, it’s a case of rather than making a forecast of this will happen because no one knows what will happen, it’s about looking at the possibilities and playing this as it continues to develop.

But, look, I think everything that we’re seeing to date suggests that there’s not like a major top in position and anyone calling for a crash I think…Look, I just don’t think the evidence is there to support that sort of case, although there is definitely that potential for this consolidation period to continue.

So, over to the local market. And so, let’s start by drawing in some levels. So, this is the support which has been so important. This has been the battleground support over the last few weeks that’s held really well.

And then the next point to watch is resistance which comes in around there. So, the resistance currently is around $7,700 to $7,730. So, look, local market, it’s not out of the woods by any stretch.

It’s actually weaker than the U.S. market, and the rally that we’ve seen off these lows has been…like, it’s been pretty soft and rather than impressive. And so, we really need to see now whether the bulls can take this high, whether we can get up, we can test this resistance, and whether we can break through it.

So, while it’s been pretty heavy going so far over the last week, again, I think it’s a case of we got to get the bullish side the benefit of the doubt but still be aware that there is a bearish side that could continue to play out.

So, look, the good thing about this is I think we have some clear levels to work with. We got the resistance above the market. We break above there we start becoming more optimistic that we are actually going to go up and retest those highs.

But if the market stalls around this resistance point which we’re approaching and starts to roll over, well, then we start to look, well, are we going to get a retest of support? And if we get a retest of support, does it break this time?

Do we get that larger move down to the 200-day moving average and below? So, look, if the bearish case were to engage, it could look something like this. You could get…The test could roll back over. We start seeing price action like this.

This is where I’d start to consider re-engaging my hedge, and then that could lead to a test. You’d probably get an initial bounce off it but then you could get the breakdown.

That’s a sort of price action through here that I’m on the lookout for to suggest that maybe where we do have another leg down and that this isn’t all over.

So, just looking at some measurements, 15%, where is 15%? Fifteen percent is down here, you know, 10% is down around, you know, somewhere around about here.

So, look, maybe this is still in play. We’re going to keep close on what the U.S. is doing, but look, I think it’s the same scenario in that. I think the play for the moment is to give the bullish case the benefit of the doubt whilst all the supports are intact.

But stay cautious because this sort of thing is still a possibility. All right. So, oh, look, and by the way, if you’re getting value from this, you’re finding it interesting and helpful, please hit that like button because it tells YouTube that people like it and then YouTube shows other people, which is good for me.

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Okay. I’m going to have a quick look at uranium because we’ve been talking about that over the last couple of weeks. I’m going to look at this one here, Yellow Cake. Is a U.K. listing and it’s a proxy for the uranium price.

What we’ve been talking about in the last couple of weeks was is this a bullish setup? Is this a buyable dip? And we were looking at the pullback to around 50%.

And theoretically, that looked like a point where if this market was going to bounce it would possibly bounce from and it offered one of those asymmetric entry points. So, asymmetric is where your risk is relatively limited compared to your potential upside.

And, look, it’s actually turned out quite well in that we’ve got this strong rebound of the support area, and this is common across much of the uranium space. So, it’s been good. It’s been quite a handy balance.

And looking at the local listing of Paladin, Paladin hasn’t been as strong. It’s been a bit disappointing in the way it’s bounced. It’s certainly bounced off the levels we’re looking at but whereas a lot of the U.S.-based stocks have come up to around here, Paladin hasn’t been able to do that.

And this is why I played the uranium space using an ETF which has a basket of stocks rather than…Like, in Australia, we’re quite limited to our uranium stocks. Lots of little explorer types but not much in the way that the larger pure uranium plays.

The way I play this is through the North Shore Global uranium mine ETF listed in the U.S. Looks very much like that Yellow Cake chart. Nice little support level through there near the 50-day moving average, quickly throw on the Fibs, the Fibonaccis here back to that 50% level and we got that balance.

So, I think this uranium story, I think it’s a great medium to longest term story. It looks like it is gaining momentum now, whether this is it and we’re really starting on to a really big next leg high that’s yet to be seen, but it’s constructive what we’re seeing at the moment.

So, look, I won’t get into a position up here. There’s potential that we get some consolidation after this move. I’d like to see how the price action develops, but nonetheless, it’s looking really interesting and maybe another opportunity presents as the price action unfolds over the next few weeks.

But, look, this is an area which I’m pretty happy with how it’s unfolding. And, by the way, if you’d like to know more about my trading strategies and if you don’t know much about them already, you’ll find a link to my training series in the description just below this video.

So, you just click on that and go to the link and you can hook yourself up with this free training. I’ll tell you all about, like, how I’m using, you know, trend following and exit areas and all that interesting stuff. So, have a look there if that’s something new, something that might interest you.

Okay. Lastly, the last thing I want to look at, quick look at copper because copper has been having quite a good week. It’s been in this long consolidation for the last four months, and I’ve been watching it.

Hasn’t been really noteworthy to bring up and discuss and trade the trend over the last few weeks, but this week it is. So, let’s draw in what is interesting and what is happening. And we’ve got this wedge. It’s a bullish wedge. That’s what the pattern is called.

So, you can see it comes up, makes a high, and then it bounces through here in this contracting range and then breaks higher. That’s how a wedge works, and it’s…Yeah, look, the theory with the wedge is that, you know, you might get a return move and then you get a continuation of the rally.

So, very interesting when you look at it on the daily chart from that perspective. That all looks good. And I think there’s, you know, good possibility we see higher levels.

My one caution with this, my one hesitation to getting really excited about copper is that when I look at it on a weekly chart, it’s always good to look at different timeframes.

It can change the perspective when you…Gives you, like, a full picture when you look around. I look at like…you know. I might look at a 15-minute chart, an hourly chart, a daily chart, a weekly chart, you know, occasionally a monthly chart.

It all gives good perspective. So, my concern with this is that…So, I’m just going to get rid of the wedge for a moment. So, I’m looking at this area here which is consolidation.

My concern is that after this move higher, which has been a really strong and fast move, this just isn’t enough time to consolidate that move and provide a base for another leg higher.

And I think higher levels of copper are coming. Question is, when are they coming? Is it too soon to expect them to, you know, race away? And if it does keep going up, it’s almost becoming parabolic and that becomes unsustainable in itself.

So, what I’m thinking could happen if this market does continue higher over the near term, which I think there’s a high possibility that it will, I just wonder, I wonder whether we do see a pop to a new high but then we see…I’m just going to get a little bit more room on this chart and do that again so I can just demonstrate what I’m thinking.

So, yeah, if we do get a pop to a new high, then that fails comes back and we end up with something like this. Yeah, it looks something like that, and then ultimately, we get a break-up.

Maybe we just need…maybe it’s more time. Maybe this needs more time. Maybe this part of the move doesn’t happen until, look, based on this projection that’s early 2014 or, you know, mid-2023, you know, who knows? We don’t know.

This is complete speculation but this whole move would feel more balanced if it had more consolidation. But, look, who knows? This whole green metal play is a big story and maybe it does go now.

So, look, there are ways to play this. It’s good to have your eyes open and know that there is alternate scenarios other than this goes straight up. One way that you can play this is through an ETF called CPER. It’s in the U.S. listing.

So, this is a play on the copper price itself. So it’s not the mines. This fund buys copper futures. So, you’re actually playing the copper price. And, look, it’s got, you know, the same wedge pattern that we saw before in copper.

And if we got that, you know, we got a bit of a pullback over the next few days, maybe that does present an opportunity to get on board before maybe we get a move like that. So, you know, that’s an interesting sort of play there.

Well, then you’ve got the stocks. Well, I’ve had a look at the local stocks, a peek at the local ASX stocks. There’s probably, for me, I think it’s probably OZ Minerals, and, you know, the moving average is positive.

You know, it seems to be breaking upwards. Look, it has had a big move. It’s gone from, you know, $6 to, you know, $25. But that’s probably the peek of the local stocks. Looking at the others, they just don’t look right at this point in time.

My preferred way, the way I think copper would be playing, I’d like to play copper, would be through this ETF. It’s COPX. It’s another U.S.-listed ETF and it’s a global copper miners ETF. And this is how I played uranium.

Rather than just back one company and just hope that company is well managed and they get it right and there’s no issues with the company, it all just plays out, I’ve gone for that uranium ETF which has like, you know, 20 or 30 companies in so it doesn’t matter if, you know, one of them doesn’t fire.

Same theory here. Rather than try and back one local copper play, and the pure copper plays is not that many, I kind of like this way here to play it. So, look, it has recently just broken up out of this pattern here.

So, again, just another wedge-type pattern. Draw it like that. That would be the way I’d draw that. We’ve just had the breakout, so if there was going to be…Look, a pullback is quite possible after you get a break from these patterns.

So, say a Fibonacci pullback would be…It’s the wrong one. This is the one I’m after. Look, a Fibonacci pullback, you know. Could see it come back somewhere around here.

So, look, if we were to see a move like that develop, look, this could be a buying opportunity here. And from a risk-reward perspective, I think it’s quite manageable.

So, look, if I was playing this I’d then be able to…Look, I’d look to place a stop loss, you know, maybe somewhere around there, for example.

And then I look at this and I go, “Okay, well, if I was able to get in around here, I’ve got…” Look, maybe I’ve got around 8% risk, and now look at my potential upside in this and like where could this go? It’s like…you know. You could see it quite feasibly.

You could see it up around here, 60% or plus. Could go more. And so, you got 8% maybe risk, you know, maybe there’s, you know, 50%, 60%, 70% upside. So, it’s a really high multiple for risk-reward, and you play those sort of ratios and percentages all day.

Everything you do, you end up giving yourself every opportunity to do quite well over time. So, that is the stock of interest for this week. I think have a look at maybe COPX, the U.S. listing if you’re interested in copper.

And, look let’s call that a wrap for this week. Remember, if you like this, you got some value of it, please hit that like button and subscribe to the channel by just clicking all the links, YouTube links below, and we’ll come back next week, put all the pieces together for another week in the markets.

So, thanks for joining in and I will catch you next time.

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