Trade the Trend | Episode 6 

By Jason McIntosh | Published 10 September 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

00:25 Where is the Nasdaq going?

02:35 Where is the S&P 500 going?

03:20 Where is the Dow Jones Transport Average going?

05:38 Where is the Dow going?

08:19 Where is the All Ordinaries going?

14:14 Where is the gold going?

14:52 Where is North Star (ASX:NST) going?

15:27 Where is uranium going?

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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 10th of September 2021. As always, this is a general commentary and doesn’t take your personal situation into account.

I am going to be bringing these videos each week. And as always, I’m covering the latest developments in the market and focusing on some of the opportunities that I’m seeing.

And as I always say, if you like these videos, please hit that like button. Let YouTube know that you’re getting value from them and they’ll keep showing them to you and other people.

So, okay, let’s get into it with our first chart. So we’re going to start with the NASDAQ today. Looking at this, you’ve got to say this has been and it still is a strong market.

Look, we’ve had a couple of weak days just here, but look, you can’t read a lot into two weak days on their own.

Now, the reason I’m focusing on this is because we’re in that September window, the September part of the year, and I’ve been seeing news reports that September is the worst month of the year, that markets crash in September, that all these awful things do sometimes happen.

And people understandably get…you know, they see these things and they get nervous. You worry about it. And look, the thing is that we just don’t know. So we look at this market here and it’s… So just focusing on the last little bit.

We just don’t know whether we’re seeing something like this happening which, at the moment, this is the same sort of profile or whether, you know, something larger takes form.

You don’t know because just looking at this little bit here, just take a small snapshot actually, just looking at this, you know, these things all start off the same. It all looks quite similar, but we don’t know how it’s going to develop.

Nobody knows. Anyone who talks with high conviction around these points, they’re really doing you a disservice because they, you know, they can really throw you off what could happen by telling you what you should expect to happen and nobody knows.

So it’s about understanding possibilities, managing those possibilities, and responding to what the market is doing, not what someone says that, you know, it’s going to do because we just don’t know.

So at this point, this trend is still up, but, you know, we’ve always got to keep an open-mind because at some point, we are going to get a larger correction kick in. So jump over to the S&P 500 and look, it’s very much the same sort of situation.

Just looking at this little bit of the chart through here. Look, it doesn’t look dissimilar to, you know, what we saw here. Same sort of thing. So it’s possibly…like, we had that weak looking day yesterday.

It’s possible we do get another spurt to the downside. It’s possible that spurt develops into something else, but we just don’t know. The bulls could also come in and hold the line here.

So, it’s an uncertain short-term environment and it’s one we’ve got to keep an eye on and see how it plays out. One of the markets which does give some clues to potentially the market could break to the downside is the Dow Jones Transportation Average.

It’s an interesting one. The Dow Jones Transports and the Dow Jones Industrial have historically had this good correlation. And when one starts to diverse from the other, it can be a sign that they’re going to get a change in trend.

So the transports has really been doing something quite different to the Dow over the last, last few months. Well, the Dow has been going sideways and this has been falling. Stabilized a couple of months ago, but I’ve been watching this pattern develop.

It’s a bit of an upward sloping wedge-type pattern. So just let me just draw it in on the chart. And watching it last week, it looked like we’re getting some momentum and maybe this pattern was going to sort of like dissipate and we’re going to get a move up through here to the topside.

But look, we’ve had this market roll over in the last few days. It’s broken here. So look, if we look at this market just in, you know, isolation and we do some, you know, some measured moves perhaps of what could happen, and it’s maybe we get…

And before I do that, it’s interesting like…just doing some Fibonaccis on it, the retracements, it’s interesting that this market came right up into this 38.2% retracement zone.

So it wasn’t a very strong bounce. So it’s another hint that maybe this market does have some underlying weakness.

And if we were to get a measured move, so like projecting this move to the top of the reaction higher, down again, look, it does open up these levels down here.

So if the transports were to do that, well, then you’ve got to expect the Dow is going to be dragged down as well and the S&P, and even, you know, the mighty NASDAQ which nothing’s been able to stop it over the last 18 months, even that could lose a bit of steam.

So it’s going to be interesting to watch what happens here over the next few days whether this market does continue to pull back. Looking at the Dow just quickly. I’m just going to remove that from now.

Last week, we’re looking at this little area through there. So I just throw it up on the daily chart and I was looking at this little triangle pattern that had formed which looked…

Look, I was looking at this and I thought, “Well, look, you know, the trend is up. We’ve got this consolidation. Often they break to the topside.” I was expecting that. It just goes to show it’s difficult and it’s dangerous preempting what a market is going to do.

Often you’re better off waiting for the market to actually break and show its hand. So the break didn’t come to the upside. It actually came to the downside and we picked up a bit of momentum, closed last night down on the lows.

So let’s just jump back to the daily. So looking at this, this has been a level we’ve watched for a while now. It was a resistance, now support. Market’s really now testing the base of that and if we throw on some moving averages as well, let’s have a look at the moving averages.

So look, the Dow is now just starting to break down below its 50-day moving average. That potentially brings into focus down here to the 100-day moving average and then below there, we’ve got these lows from back in June.

These were all possibilities, not forecast. They’re just possibilities. We’ve got a market which does seem to have some underlying weakness creeping in. It’s the September month.

So just the psychology people have, you know, leading in the latter part of this month can potentially come into play. Look, if this were to happen and I’m not saying that it will, but if it were, that’s a 6% pullback which in the scheme of things is completely normal, completely normal.

And I think people have just become so nervous over, you know, over the last 18 months that every pullback is going to lead to another crash. And that’s unlikely, you know. These crashes don’t happen frequently at all.

So I think for now it’s like, look, we just got to see. Just wait and see how the next few days unfold. There is definitely a possibility that this market is going to start to test lower, but if it does, I don’t think it’s the start of a mega collapse or anything like that.

It’s just if it does happen, it’s part of an overdue consolidation and pullback of gains we’ve seen. So over to the All Ordinaries. Here’s a trend channel we’ve been watching.

Middle of the range last week. We’ve had this quick fall down here to support. This is the supports we’ve been watching over the previous highs. We’ve had the bounce. We’ve bounced off that today.

We are below the 50-day moving average. That in itself isn’t a big deal because you can see here, we’ve had this test below the 50-day before and then we rebound.

This market could stabilize here and start to push higher. But if it can’t hold the line at, you know, pretty much today’s low. We come in on Monday and we break below today’s low, break below here, well, then, you know, you’re right on the trend channel and the 100-day moving average.

So if the market then can’t hold that line, well, then you start looking. Well, it does open up that window for a larger pullback. And, you know, we haven’t seen a 10% pullback since 2018.

So just having a look at this which is… Well, other than, of course, the COVID crash, the last 10% pullback was down in this region here. And this happen generally maybe around once a year.

Every year or so, you get a 10% pullback. We’ve had this big run here for 18 months now and there hasn’t been a 10-percenter. I think we’ve barely struggled to get to a 5% pullback.

So it’s inevitable. At some point, there is going to be something larger. Whether it’s shaping up now, you know, we don’t know. So I think what’s really important is just to focus on what your objectives are.

So for myself, I’m targeting medium-term trends. I’m looking for the big medium-term upward swing and I’m using wide stops to play those moves.

So if we got a 5% or a 10% percent correction like, just having a look at what that could look like if one were to develop, well, look, 5% is barely a blip. You know, it’s not a big deal at all.

A 10% is something like that which takes us back to sort of like, you know, May sort of levels. Again, this isn’t a prediction. It’s just, you know, possibilities, what could happen.

If you’re targeting big medium-term trends and you’ve got wide trailing stops, a 10% pullback shouldn’t cause that much havoc in your portfolio. A lot of your stocks will… I’d expect for my own portfolio, I’d expect a lot of the stocks to ride through a correction of that sort of magnitude.

It’s not a particularly big deal. So look, just being focused on what you’re trying to get and then trading accordingly I think is, you know, is particularly important.
And look, I think the COVID crash has made a lot of people extra nervous.

But as I was saying earlier, they’re really rare events. So there’ve been, what? I think four of them in mind during my career. There was like, the ’87 crash. Well, actually that was in year ’12. So that’s not quite within my career.

So maybe three of them. So it was ’87, 2000, 2007, and then the 2020 crash. So crashes are rare events. They happen maybe once every 10 to 15 years, something around that sort of order of magnitude perhaps.

Plenty of volatility and, you know, pullbacks, and corrections. Apart from them which may come back, you know, 10%, 15%, 20%. But big crashes are rarity. So people shouldn’t be too overly focused on that.

I think that’s a mistake and I’ve been hearing just over the last, last couple of weeks, so I’ve been hearing people talk about, “Oh, look, you know, moving to cash and, you know, sitting on the sidelines,” and this sort of stuff.

It all makes a really interesting headline, but I don’t know. I don’t think it’s quite that simple because like, I look at my own portfolio and I’ve got about half a dozen stocks which are up over 100%.

So I don’t want to move them to… I don’t want to sell them every time it looks like the market could have some sort of a correction because, of course, every time you sell, you’ve got a capital gains tax event.

So you kind of then need the stock to fall, you know, 15%, 20%, or so just to get back in at where you’d be ahead your, you know, your tax, you know, to cover for your tax coming out.

And so selling really interferes with the compounding process. So I’d rather wait for my stops to get hit. A lot of the time they won’t. Sometimes they will and that’s part of the game.

But a lot of the time they won’t. So trying to not get too caught up in short-term volatility even medium-term, you know, pullbacks and consolidations I think is really, really important.

And as I’ve been saying for the last, last couple of months, I think it’s a time now to be cautious. And by being cautious, it’s not sell everything and go to cash.

It’s exit the stocks which are showing relative weakness, which are struggling, which are maybe starting to grind lower. I think about exiting those. I’d be selective in the stocks that I buy and I wouldn’t want to be using leverage.

I think leverage is very dangerous at this part of the cycle where the market has run for a long time and we do know that historically, you know, 5% and 10% corrections are all part of these movements. So I wouldn’t want to be using leverage.

So, you know, that’s how I’d be doing this. You know, I’d like to give you a high conviction call, but I don’t think they’re valuable. I think high conviction calls as I said earlier, I think they’re dangerous and they can leave you completely off-footed when the opposite happens which it often does, you know.

You make calls with certainty. You often end up with, yeah, egg on your face. It just often doesn’t work out. So instead, I think know the possibilities, know the possibilities, and understand how you might play them.

So just quickly. Just moving on to… Look, I don’t think there’s a lot in terms of opportunities to get stuck into this week. I think it’s a week of watching and just seeing what happens.

Gold, I keep watching this. I think it’s great. I think it’s looking great medium to longer term, but look, just in here, we’re not doing a great deal. I don’t think there’s a hurry to get involved.

I keep an eye on the gold stocks. That’s not the one. North Star. North Star is a good one to keep an eye on and it’s… Look, the moving averages are down. The stock is trading down around support.

So, you know, maybe some of these gold stocks do start to base around here, but we don’t know. You know, maybe support breaks, maybe it goes sideways for a few more months.No hurry. No hurry in short is what I’d say with with gold.

Uranium was the one I was looking at last week. Really interesting, really positive on this over the longer term. I think there’s great potential there, but from an entry point, I don’t like it here. It’s not really what I’d call an asymmetric entry point.

Asymmetric is where you can get in and you can maybe risk a dollar to make three dollars or more. Getting in at such an elevated level after run, you know, I think it’s just full of risk.

You lose at asymmetry in your entry and you get situations where you’re risking a dollar to make a dollar. And that doesn’t… I don’t think that really plays out.
Look, I don’t know what’s going to happen, how it’s going to play out.

But if we saw something like that, that wouldn’t surprise me and that’d be great if we did. Who knows? We might even see that, but that’s a sort of entry level that I’d look for.

I’d look for like a move sideways and then a break out of that sideways pattern. Maybe that doesn’t happen. Maybe it shoots up again. Maybe it comes back quite heavily if the market has a bit of a shake up.

We don’t know, but all in all, watch and wait. There could be something interesting on the brew there, but we just need to bite our time for that one.
So that’s all. That’s all for this week.

Please leave me a like if you found something of use there. Hit the subscribe button if you haven’t already so you’d go on as one of the followers to my YouTube channel and leave me a comment.

Let me know what you thought, if you’re looking at something in particular, and let’s leave it there. Find some trends this week. Hopefully we get some uptrends and not too much on the downside.

But I’ll be back next week to sum it all up and try and make sense of the… Try to put the pieces together again next week. Until then, have a good weekend.

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