Transcription
You know those stocks that make the big runs higher? I'm talking about 50%, 100%, sometimes even more in a very short period of time. Well, how do you find them? This week, I'm going to show you exactly how to find them and show you a few examples. Plus, I'll do my analysis of the markets; we'll figure out where the markets are likely to go now that the US election is behind us.
Then, at the end of the video, I will apply that thinking from the lesson at the top of the video. We'll look at the trade of the week on FOXO.
All right, so what is it about hot stocks that we can sort of look for as a sign, a signal that is likely to happen? Well, here it is very simply: almost every hot stock will start its strong market-beating trend with abnormal activity. However, not all abnormal gains, not all abnormal volume leads necessarily to strong price moves. The best signals occur when a stock makes a surprise price gain from low volatility. I'm going to show you this on a chart in a minute.
Typically, there's some optimism leading into the break, and I'll show you what I mean by that in a moment. Now, this can be on any time frame for any trading style. So, you could be a day trader looking for this; you could be a long-term investor looking for this. Almost always, the really strongest market-beating trends start with abnormal activity.
So let's use a couple of examples from the past couple of weeks. Here, the first one is SP, and this chart that you see on screen is a 15-day, 30-minute chart. You can see that right coming into the 4th of November, the stock was very boring and quiet, and then it made a surprise jump to the upside with abnormally strong volume. That abnormal volume got stronger and stronger as it moved higher.
Now, I have created an indicator called an action candle. An action candle looks for statistically significant abnormal price and abnormal volume. This candle here is an action candle. So is this one. Any candle that makes a strong price gain we could call an action candle as long as it's got strong volume as well, but they don't all matter. The one that matters is the one that surprises.
So when you get this strong abnormal price move from low volatility, and then I said from optimism. Now, optimism on a chart looks like this: if you've got a stock that's trading sideways and it's got slightly rising bottoms like this— which by the way you can see right here— that is optimism. That means that the buyers are gaining control of the market.
Then what we want to see is the abnormal break with strong volume and strong price movement to the upside from low volatility. That telegraphs that big move to the upside. In this case, the stock went from this price here, which is 50, up to 180 within about a day.
Let’s look at another example here; this is ACRS. Again, low volatility, boring sideways trading, optimism because we have a rising bottom, and then an abnormal price move to the upside with abnormal volume. Now, I've created indicators to look for this, and I'm going to show you those at the end of the video, so stick around for that.
Here you can see the buy point there at 140. We got the optimism, and the stock went into the strong upward trend which still hasn’t stopped. The stock is now almost up 100% in the last couple of weeks. So keep it simple: look for the stocks that are making the abnormal price moves with abnormal volume from low volatility.
All right, let's get into this week's market analysis. I'll just jump into the charts. Here is the S&P 500 (SPY), and you can see that we have general buyers in control. Now, we had broken it here, and that was a bit of a worry. I think that was people just not wanting to take or hold positions into the election.
Trump wins the election; you get the gap up in the market, and we're back into that upward trend. So the buyers remain in control, and as long as that upward trend is intact, we should remain bullish on the US market. If we look at the NASDAQ 100, it too has managed to break through to new highs. It had been sort of stuck under there, but we broke out this past week, and so that should lead to higher prices for the NASDAQ.
What about the Russell 2000? Pull up IWM; this is the small-cap group, and this is where we see, I think, a greater opportunity because we’ve got a market building optimism breaking through resistance this week from optimism, this rising bottoms from low volatility. This market's been going sideways, so this is the signal that I just taught you to look for in individual stocks.
We’re seeing it here in the overall market—small cap market has just made this break, and so that tells me that the small cap stocks, which have really lagged for some time, are perhaps going to start to catch up now that we've made that breakout.
All right, let's take a look now at the Canadian market. TXU is the symbol. Who's in control? The buyers are in control; you can see the upward trend here. Buyers in control, upward trend. We had a little pullback to the trend line, broke the trend line, and that should continue the upward trend.
If we look at the three-year weekly, you can see there again the trend is intact. Perhaps a little bit extended because we are some distance above the trend line; that can sometimes lead to a little pullback, but I see no sign of one just yet. So we got to remain bullish on the Canadian market as well.
All right, let's take a look now at Gold. GLD is the symbol. Gold broke down a little bit there on the election results, but we haven't broken the upward trend line. So there was perhaps this desire to go into the safety of gold ahead of the election. The election's over; the world didn’t end, and so there was a little bit of selling pressure, but we still haven't broken that upward trend line. The buyers remain in control.
What about oil? USO is the symbol, or one of the symbols for oil. You can just see this very choppy market here. We have lots of movements up and down, a lot of choppiness in the market, and that just means that oil is hard to predict. There are falling tops and rising bottoms, but the general trend is more down than up. We need to break to the upside for oil to get healthy.
Moving along to currencies, we'll take a look at the US dollar first. UUP is the symbol, and you can see the US dollar spiked higher on the election news, pulled back a little bit, but it's still in that short-term upward trend.
What about Bitcoin? Bitcoin managed to get to new highs this week, and we can see here the little pullback there, break of the pullback—still underneath resistance. This again is the ETF, so it's not totally representative of Bitcoin, but it is pretty good. We have a market there that looks pretty healthy.
I still worry a little bit about GBTC because it's stuck underneath this resistance level, but it is holding the upward trend—sort of neutral to slightly optimistic in the shorter term.
Lastly, we'll take a look at the bond market. TLT is the symbol, and you can see there that we’re in this downward trend on TLT. We've made a nice comeback from being oversold. The question is, are we going to break the downward trend, which has been in place for almost 2 months?
I would worry a little bit about interest rates until we can break that downward trend line, ideally from a rising bottom. So we're watching that closely. If you look at the three-year chart, it should bounce from here because it's retraced into this support zone. So let's see if the bond market can actually reverse and interest rates can actually start to fall.
So my ratings then: bullish on both time frames for US large cap, NASDAQ, and US small cap; Canadian stock short-term neutral, a little bit of a pullback, but I think generally still pretty good; bullish long-term on gold, neutral short-term; bullish long-term on oil, neutral on both time frames; US dollar bullish, long-term neutral; Bitcoin bullish in the short-term, long-term neutral; and bonds still short-term bearish, but at a point where they could start to break from that pullback.
All right, so at the top of the video, we talked about the importance of looking for abnormal activity breaking from low volatility. In this week's trade of the week, I'm going to show you an example of that, but on a very short-term time frame.
In this case, it's the one-minute chart. This is a stock that had a really great run this past week on a couple of days. This was on November 6, and here you can see that same pattern that I had been drawing earlier in the video. We've got this sideways trading pattern: we had a breakout there, and here you see a little pink and yellow dot. So that's my action candle indicator.
You can learn more about getting that indicator and how to use it by just going to my website, stocksscores.com. And while you're there, make sure you sign up for the free weekly newsletter. I do stock picks, and they've been doing pretty well lately, so take a look at that.
So anyway, we have this nice action candle breaking from low volatility, and that started this nice strong market-beating move where the stock went from 45 cents to a dollar within the day. It all starts with that abnormal activity breaking from low volatility, breaking from optimism.
I hope you've enjoyed this week's video. Do me a favor; make sure you're subscribed to the channel. If you've liked this video, click on the like button, and as always, trade well.