How to Predict Stock Market Trends - Market Minutes for May 18 2020

in this week's episode of the stock scores market minutes I'm gonna show you how to predict the next trend in the market using what has happened already I'll also do my regular weekly market analysis give us a sense of where the market is likely to go I will do a market scan in search of opportunities and look at the day trade of the week on Sorento SR and E [Music] so there's been lots of volatility in the stock market over the last little while and that overall market volatility will of course pull stocks up or down with it and that makes it more important than ever to be able to predict the short-term trends of the market now it's actually quite simple if you can understand three important concepts inflection points trend lines and support and resistance zones so I'm going to show you with some charts how we do that with the overall market and you'll start to see that you can actually predict where the market is going to go using those simple things now it's very important when you are trading in this environment to not succumb to emotion there are big swings up and down and it's very easy to feel greed when the markets been going up for a couple of days or fear when the market has been going down sharply for a couple of days the problem is because the market is very volatile if you jump on to that fear trade or on to that greed trade you may be getting in late just before the trend is about to turn so you want to keep it simple focusing on inflection points trend lines support and resistance and I always like to apply this to the chart of the S&P 500 symbol SP Y so we start off with inflection points now an inflection point is any peak or valley on the chart you can see lots of them here I'm not going to mark them all on here but there's lots and there's little peaks and there's little valleys and we call those inflection points so that's pretty easy the next thing you're gonna do is draw a line across them so you draw a line across inflection points that are rising from left to right you have an upward trend line falling from left to right you have a downward trend line what we like to look for are breaks of trend from either rising bottoms rising inflection points or falling tops falling inflection points so if we think about this past week we had a little inflection point here and another one there but notice that this was higher than this one so that's a falling top then we had a breakdown of the upward trend line from a falling top and that predicted the downward move we then had a downward trend line which we broke from a rising bottom on Thursday and that started the upward move that is now roughly a day and a half in and so keeping these simple concepts in mind will help you to trade with the trend it's so important right now more than ever because of the extreme market volatility now we can apply those same concepts to an even shorter term chart this is the chart of the S&P 500 on the 2 minute time frame because the other concept we want to keep in mind is that when price falls in to support it usually bounces so what is support well look for an inflection point low draw a horizontal line and notice when price fell into that it bottom there it then rallied into this inflection point high and got stuck there so when markets rally into resistance they get stuck when they fall into support they get stuck and so those are often areas of reversal now one more here there's a bottom an inflection point low a little bit higher one that is a rising bottom I can draw a trendline across those inflection point tops and see that that was broken from a rising bottom and look what happened the market went up for the rest of the day on Friday alright let's get into our regular weekly market analysis looking at the US markets and this is the 30 day 60-minute chart of the S&P 500 and you can see that we have been essentially locked in a sideways trading range for a number of weeks that after the big bounce back so this is a base building process the markets trying to decide does it want to go higher or doesn't want to go lower and we've got gyrations inside of that sideways trading range but if we use our collection point tops we have resistance right here just under 295 and we have support down around here around 275 you can see it hits it or close to it a number of times if we can break out through the 295 level we should go higher if we break down through the 275 level we should go lower until then this markets just gonna gyrate sideways with some swings up and down that may last two three four days that's what you want to keep an eye out for though is a break through to 75 which would be negative or a break up through to 95 which would be positive looking at the longer-term weekly chart you can see the dramatic sell-off that came on a break of the upward trend line we fell into support we actually went through it during the week but never really closed below it just only slightly we bounced off of support remember that rule when we fall into support we usually bounce at support just like it did back there and now we've made back basically half of the loss those are using something called Fibonacci ratios when you come back half that is a Fibonacci number and we are now basically going sideways for the last four weeks or so until we can break out through 295 I think we're destined to go sideways or break down through 275 those are the key levels to watch looking at the small cap sector this is a daily chart now and notice I can draw a trendline across the bottoms we had a falling top and we broke down through that on Wednesday so that's a negative for the small caps now it bounced back Thursday and Friday but I still think some caution is warranted with the small cap stocks because of this breakdown from a falling top now the only way that that gets overcome is if we can break up through this to 135 level then this negative breakdown will have been negated for now be cautious with the small cap US stocks looking at the Canadian markets and this is the 30 day 60 minute chart again you can see a sell-off into this area of support bounced off of it but we have not gotten out of the woods yet because we are stuck inside this trading range where we're just bouncing around in it we may get up to this level get stuck we may roll down to this floor and get stuck but until we can break through one or the other I would say it's a sideways neutral market longer term chart very similar to the S&P but notice that this week we came close to hitting a new high we closed below the open that's why that candle is red it closed below the open and that is a signal that we may roll over here and move lower so another sign of caution here is warranted on the small cap sector the tsx venture making a great comeback a nice steady upward trend until that trendline is broken I would remain optimistic in the short term recognizing that we are slowly getting towards this resistance level where we may get stuck on two currencies and here we have the US dollar which had lots of volatility around the crash and it's now normalized we're basically going in a sideways range US dollar looks relatively stable looking at the Canadian dollar also relatively stable you have the parabolic move to the downside the break of that downward trend line from a rising bottom and we've been stable ever since again if we can break up through 71 that would be bullish if we break down through 69 or even 69 and a half that would be bearish interest rates here we have the Treasury bond etf the 20-year bond iShares I like to use this as a proxy for interest rates if this is going up interest rates are going down you can see that there is generally an upward trend with lots of volatility and we're now kind of in that sideways range as well interest rates are low no sign that they want to go any lower no sign that they want to go any higher we're just stuck in a sideways range right now but I don't see higher rates in the horizon anytime soon commodities gold managed to break out of a little three or four week sideways trading range this is a weekly chart and you can see that this past week we broke out two new closing highs on the on the two-year three-year chart here and that is a bullish signal for this to continue higher because we are well into the trend I think you have to be a little bit picky about the gold stocks that you might buy because many are already up a lot and therefore risky but if you have positions in the gold names I would stick with them now oil is the really interesting chart because it has of course had a very sharp decline and it recently broke the downward trend line and it's now building the rising bottom that I talked about earlier what we need is a strong break to the upside from this rising bottom as a signal that a recovery is starting in the oil market it's sort of started on Friday I don't think it was a definitive break and so I would remain somewhat cautious but still there's some cause for optimism that oil may finally start to bounce back and finally the fear chart we look at the VXX to gauge investor fear you can see we're still far above where we were but also far below where we were when fear was at its highest back here the trend in fear is down you can see that we have falling tops and rising bottoms and so I expect that the markets slowly normalizing now if the market were to break down through support remember 275 on the SP SP Y if it we can break down through 275 I think this will start to go up and this is a good instrument to trade if the market is selling off again so my ratings then neutral on both timeframes for US and Canadian stocks gold bullish long-term neutral short-term oil neutral on both timeframes stocks are making short up-and-down moves in a volatile volatile sideways trading range as investors try to figure out the next leg of the move so what we want to do is by pull backs to support and CEL rallies into resistance now gold is up to new highs and it continues the upward momentum but you got to recognize that it's getting risky at these levels oil is stabilizing and it may bounce back but it really hasn't made that decisive break yet and fear is coming down all right let's jump over to the stock scores market scan now and do a scan in search of opportunity this week I'm going to run the abnormal breaks us scan now this particular scan looks for stocks that are trading with abnormal price and abnormal volume activity we know that those are the footprints of hot stocks those stocks that are trading on some new information that have investors excited will often show this abnormal activity early in their upward trend and what this market scan does is goes through every stock in the u.s. or Canadian market and looks for those breaks from low volatility and with abnormal price and volume action so I'm gonna jump in here and run the scan and it found 255 stocks then we won't go through all of them but we'll go through some of the more active ones I'm actually gonna sort this by number of trades just so we put the more liquid stocks at the top of our list so the first one was sorrento sr NE we're going to talk about that as it was the day trade of the day on friday i'll come back to that one let's take a look at aurora cannabis many of the cannabis names starting to show some life really been in downward trends for some time and ACB made a big volume move to the upside on friday but notice that there is no rising bottom on that chart we are in a downward trend line and we've broken that I think it's early stage for the stock to turn around but I don't think it's yet decisive I expect that we may go up a little bit pull back make that rising bottom and then if we start to break higher from a rising bottom I'll get more interested in this name some of the other cannabis stocks have a little bit better charts but I don't think ACB is quite ready yet silver showed a lot of strength a number of silver names on Friday for example here you see first majestic silver AG trying to break out of this little sideways trading range is something we call an ascending triangle see the volume picking up problem I see here is upsides relatively limited to resistance in between 11 and 12 dollars so there's not considerable upside given the risk you have to take you know your support is down around 7 you're buying it 9 and the upside is 11 that's like a one-to-one risk reward ratio it's not ideal I like that to be closer to 2 to 1 but we can continue looking through these and as I look through them I look for certain patterns this pattern is something called a bottom fishing pattern or at least that's what I call it you can see the downward trend we broke the downward trend we've been building rising bottoms and this Friday we broke out through resistance with abnormal volume having broken the downward trend I think the stock looks likely to move back up to the highs around $8 in the months to come I think CDE is a name worth considering here keep on moving look through a few more and then we'll move on to the day trade of the week go pro it's ok I'll tell you what's good and what's bad about it so what's good is that it's building rising bottoms and I think if you own this stock you would want to hold it what I don't like is it's a little bit late because it first made its break from a rising bottom back there at about $3 well now we're pushing $4 we're already up 33% on this name in the past two months not even 2 months 7 7 6 or 7 weeks and so I think it's a little late you know it had a good day on Friday but it's coming into this area of resistance where I expect it will get stuck I think short term it probably does get up to that 4 and a half dollar range but when it does it will probably stall there and I don't think that is ideal so a good hold if you own it but I wouldn't initiate a position here alright well let's jump back into the presentation and we'll take look at the day trade of the week and this week it was a very hot stock s RN e Sorento it made a very strong abnormal move on Friday and the economics of it were outstanding so let's take a look at the chart and just talk about that again the symbol s are any my action candle indicator picked it up right at 9:32 and it was one of the stocks that we traded on the act of life service with stock scores of course active live is where you can watch my algorithms running all day looking for these stocks really finding them before most people do and in this case I said you know what it's gapped up on the open because it jumped up pretty significantly on the open so let's wait for a second signal now what I mean by second signal is I wanted to pull back and then move back up through the action candle clothes which in this case was four dollars and forty seven cents and so what I had suggested is that we put buy stops in at 4:47 and you can see that when they hit 40 47 we had a little spike there so that was our entry point that let's call it for 48 and it took a little while it went sideways for about an hour and a half maybe a little less and then it really started to gather momentum and guess what it was there was a downward trend line and it broke the downward trend line from a rising bottom that's the theme this week and you see there the break and then it just went parabolic to the upside so that was a really a great trade if you look at the economics of it because it was such a volatile stock the position size was not very big for every $100 of risk required 370 shares in that position which was 1654 dollars of capital because you can margin day trades three-to-one you would have to put up 552 dollars of capital the stock ended the day right here at an 8 and a half our our game that's the measure of these lines here that's what we call reward for risk which means it made eight and a half times the risk for eight hundred and fifty dollars for every $100 risked well given that we were risking or putting up $552 of capital that was a 154 percent return on a one day hold now if you manage to get really lucky and sell it at the high which of course we never do but at that point it was actually a sixteen point seven times risk which was a sixteen hundred seventy dollar gain or a three hundred and two percent return for a single day all right well that has been these stock scores marking minutes for May 18 20 2000 P you've enjoyed it if so please give it the thumbs up subscribe to the channel click on the notifications bell and most importantly trade well [Music]

Channel: Stockscores

Views: 19,208

Rating: 4.9373913 out of 5

Keywords: stock, trading, day trading basics, stock investing for beginners, stock market correction, how to make money in stocks, day trading for beginners, stock market analysis, stock investing basics

Id: TiGjfg3d13Y

Length: 19min 1sec (1141 seconds)

Published: Sat May 16 2020