Today I wanted to talk a little bit about the areas of the market I’m going to continue to trade for the rest of 2019 and into earnings season in January of 2020. What I’ll be discussing is on the parameters that we don’t get a substantial change in market conditions.
Here’s where I’m looking (and why)…
Two of my favorites are XLY, the consumer discretionary sector, along with XLC, the communications sector.
When I’m watching for a larger, overall trend, I like to switch over to my weekly charts. This is especially helpful when I know I’m going to be traveling. It’s good to step back, and look at the big picture. It also helps me to remember that the market was here long before me, and it’ll be here long after me as well.
Taking myself out of the market for a few days, in all actuality, is nothing in the blip of time.
It can be frustrating to feel like there are so many daily charts that are so sloppy. But, when you notice that, make sure you flip over to the weekly time frame. Sometimes you’ll see a very pleasant surprise, in a chart that’s setting up beautifully on a higher time frame.
Oftentimes, when a daily chart is so sloppy, it’s just because it’s consolidating on a higher time frame. The great news for us, is that when consolidation on a weekly chart breaks out, you can trade this move for weeks!
We all love a daily squeeze — but that only gives us 8-10 days of momentum. A weekly squeeze can give us 8-10 weeks! Especially for longer term traders, this is a gift. I also like to add them to my long stock account.
Right now, I’m noticing technical setups setting up all over the place on weekly charts — and a ton of them already have the relative strength component (the key piece of the puzzle).
XLY — Weekly Chart in Phoenix
XLY has been consolidating on both the weekly and daily charts. I’m looking for this consolidation to break out in the direction of the trend.
As for its components?
Even within this winning sector, there are clear relative strength winners, and those that have shown some weakness and consolidation as of late.
AMZN has most notably been an underperformer, especially after losing the Pentagon contract.
Scanning for Success
When I run my favorite squeeze scan, I like to search for tickers that’re within either 5-10% of a new, 52 period high. When the market’s as strong as it is, 5% from new all-time highs is my preferred selection.
This naturally weeds out a lot of the tickers that aren’t in a strong, bullish trend.
The idea is that I’m looking for something that wants to reach up and touch it’s new, all-time high on a breakout of consolidation.
What are some of my favorite tickers that came up on my scan, with current weekly squeezes?
First, I always start off with the sectors:
- XLC – Communications
- XLP – Staples
- XLB – Materials
- XAR – Aerospace Defense
… and then I look at the tickers.
Here are some relative strength names setting up for big moves:
… and more!
Of course, the next question is obviously, “How would you trade that?”
It depends on your personality as a trader, of course, but for me I use a combination.
I like the Five Star Options Income strategy, in which I sell put credit spreads on a weekly basis for income. This is great for traders that like to sell premium (or want to learn how) and are looking for a risk defined, strategic method to take advantage of slow and steady price increases over a span of weeks.
For the more aggressive trader, the strategy outlined in Ready, Aim, Freedom is a great fit, as this is my prime method I use to capitalize on big, directional movements. In this strategy, I use long calls to gain leverage for directional breakouts.
I personally prefer a combination of the two methods — but that’s the beauty of trading, each trader can do just as they see fit.