This article is over 30 days old and may no longer reflect current state of the market. However, the approach Jack uses is timeless and can be used at any time to determine the broad market trend. |
What I like to do before I use any trading strategy is to make sure I’m using a market-driven approach.
That way I’m not trying to use the same strategy into different market conditions.
So I first try to determine if the market is bullish or bearish — and then I can put on bullish trades in a bullish market… and bearish trades in a bearish market.
How I Determine The Market Direction
I’ve talked about this before, but it never hurts to have a quick refresher.
I check the state of the broad market by looking at three ETFs which track the broad indexes.
To refresh your memory, in the charts I’ll be using:
- the green trend line represents the short-term 20 day moving average
- the blue brend line represents the mid-term 50 day moving average
- and the red trend line represents the long-term 200 day moving average
I’ve shown you before in several articles (here’s one) how to set these indicators up on your trading platform.
The teal and yellow candles represent the stock price. They turn white when the price falls below the short term moving average.
The SPY
Ok, now that we’re up to date on that, the first index I look at is the S&P 500, which is represented by the ticket symbol SPY.
As you can see on the chart below, the SPY was in a great trend up until about April when it started dipping below.
The short-term moving average never quite got below the mid-term moving average, but the price stuck between moving averages for a little while there.
When that happens, that’s what I call No Man’s Land, meaning that there’s no trend going on, so you need to be cautious.
Right now the SPY has come back above all three moving averages, but it’s just barely bullish. To really get going, it will need to break the 525 level which was the previous high.
The Dow
Next up is the Dow Jones Industrial Average. That’s made up of just 30 stocks and is represented by the ticker DIA.
Let’s take a look to see how that is doing:
Pretty much the same situation going on that we saw with SPY.
Great trend up until April, then it dipped below. If you look closely, you can see the green trendline actually went below the blue trendline for a tiny bit.
So the DIA got a tiny bit more bearish than the SPY during that dip.
Still, it’s come back up and is now bullish. But again, it’s not the kind of bull trend it was in before.
It’s barely above the 3 moving averages and it will need to get above the previous high (about 397) to really establish itself into a strong bullish trend.
The Nasdaq
The last of the 3 major indexes is the Nasdaq, which is represented by the ticker symbol QQQ.
Let’s see how that’s doing:
It’s very similar to the other two indexes. Good trend up till April, then a quick dip below 2 of the 3 trend lines and now it’s back to bullish.
Same as the others, it’s barely bullish and will need to break the previous highs (about 449) before we can really call it a strong bull trend.
Finding Hot Stocks
In every kind of market — even the worst ones — there are always stocks doing really well.
My custom-built TrendPoint software finds these stocks for me automatically.
But you can do something similar for free by using a few filters and doing a little manual work on any free trading platform. I’ve talked about that process here.
Today, the scan I ran shows that there are probably 3x as many stocks making new highs as there are making new lows.
Here’s where our market-driven approach comes in:
Since the analysis we did on the 3 indexes above shows that they are all bullish, we are going to trade in the same direction as the market.
So I’ll be picking stocks from my list of stocks making new highs and trading those to the long side.
The Short List (only valid May 10, 2024)
NOTE: The following was current on May 10, 2024. The market has changed since then and these stocks might not be hot anymore.
I strongly suggest you go look at a chart of what the following stocks looked like leading up to May 10, 2024. This will give you an an idea of what I look for in a trending stock.
After going through all the stocks in my list, here’s what I see as good right now:
Right now, Amazon (AMZN) is looking pretty good. It’s trying to make a new high.
So is GoDaddy (GDDY), it’s in a really nice bullish trend. Same with Levi’s (LEVI).
M&T Bank (MTB) is really volatile, but has a pretty good upward trend.
Scorpio Tankers (STNG) is in a pretty good trend.
Vertiv Holdings (VRT) is a beautiful trend. (I even recommended this trade idea the other day.)
How I’d Trade These
I’ve talked about trading on autopilot before, but here’s a quick rundown for you:
If I buy one of these stocks, I’d instantly turn around and set 2 orders:
The first order would be to sell 7% below my purchase price. This way I limit my loss if the stock starts to drop unexpectedly.
The second order would be to sell 10-15% above my purchase price. This way I can capture that gain and not have to babysit the stock.
My broker lets me set this up as an “OCO” order (stands for one-cancels-other) order, meaning that once one of the orders triggers, the other one gets canceled.
This way I never have to sit there and babysit my trades.
Now What?
The problem with most traders is that they read and watch videos, but never take action.
But you don’t have to risk real money to get started. There are lots of platforms that will let you paper trade.
Paper trading will gives you experience and build your confidence so you never have to guess at what you’re doing.
Give it a shot and try some of the ideas above. I think you’ll be pleasantly surprised.
Trade well,
Jack Carter
