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The Strong Gets Stronger

Another quarter has ended, and we are now moving into the final quarter of an unusually volatile year. Very few were prepared for the onset of the 100-year pandemic, which not only disrupted Main Street but also impacted Wall Street. It has become increasingly difficult to know when the COVID-19 pandemic will come to an end, if ever, and when things will even return to normal. While there are very few guarantees in life, we know that investing and selecting stocks will continuously change as the market changes. There will be new investment paradigm shifts with new structural winners and structural laggards. There will likely be more generational-type investment opportunities in the future.


So, as we enter the fourth quarter, what can we expect? Should we stay with the same companies that continue to benefit from the new paradigm shift? Or should we turn to new companies that have not participated in the current rally in anticipation that they will return to their norm? Those are interesting questions but difficult to answer as another fiscal calendar year comes to an end on October 31st, and the upcoming 2020 US Presidential Election will be unprecedented, no matter who wins.


Today is no ordinary market environment, and it is most definitely not one size fits all kind of market. Things will change, rotations will occur, sectors and stocks will come in and out of favor, and traders and investors will make and lose money this coming quarter. The easiest way to approach the new quarter is to follow the charts and listen to what they are saying. Look for the securities that are in well-defined rising uptrends. Names that are consistently outperforming the market and peers. Stocks that are liquid and are increasing in volume into rallies.


By continuously running relevant technical scans, we can identify new and emerging leadership names staying ahead of the market. One technical scan may include the following parameters: (1) liquid securities or stocks from the S&P 500 Index universe; (2) stocks trading at new 52-week highs as they often denote technical strength and leadership; (3) stocks that are in rising uptrends as defined by their closing prices trading above their respective 50-day moving ma and 200-day ma; and (4) volume that is expanding into rallies to signal the stock is in strong hands and under accumulation.


A scan on the SPX Index earlier today produced the attached list of 12 S&P 500 names. Although these stocks met the technical requirements, this is only a preliminary list. Additional technical screens may be necessary to fine-tune this list, which may entail ranking them against a broad market index (SPX) to determine where they stand among their peers and within their respective sectors/industries. Other technical measures may include relative strength analysis, RRG, SCTR technical ranking, price momentum (rate of change and MACD), and breadth indicator (advancing/declining decline).


Leadership names will often fulfill the above technical metrics, but will they also maintain these technical credentials longer-term. If they do, then this suggests that these stocks are more than just trading situations as strong stocks tend to get stronger over time.



Source: Courtesy of StockCharts.com


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