Here’s One Chart Pattern You Can Profit Off of in Any Market Environment

September 22, 2022No Comments

Hello, and welcome once again to the Smart Money, Dumb Money Show. I’m your host as usual Keith Richards. I’m President and Chief Portfolio Manager at ValueTrend Wealth Management, and I’m a Technical Analyst. Today we’re focusing on one particular technical pattern that I quite like from a trading perspective and really in a bear market, when most stuff is going down, you have to be more of a trader if you are not going to be heavily invested in cash. If you’re going to own stocks, you have to have more of a trading mentality until the market turns back into a bull market and I have discussed that probability as to when, if and what must happen to the market before we go back into a bull on a blog last week, which I encourage you to take a look at and it’s entitled “My Longer Term View on the Markets.”

I probably got the title wrong because I’m not remembering what I actually called it off the top of my head but it’s a pretty comprehensive look at the markets right now and what might happen. Whatever the case, we’re in a bear right now. At the very best we might be in a consolidation pattern and that means trading. So I want to talk about the sideways trading pattern, which is something that I talk a lot about in my online technical analysis trading course and if you haven’t taken the course, I strongly encourage you to do so. Many of the readers of my blog and readers and watchers of this video have taken the course. I haven’t heard a person yet tell me that it wasn’t one of the best decisions they ever made, so I strongly encourage you to take the course if you have not done so already. It’s a very small investment to be made for what is quite frankly, in my opinion, the most comprehensive online trading course you can take.

So that aside, I want to share the screen and I want to look at some sideways charts. Now, these aren’t the only sideways trading securities out there, but they came across my eye out of interest and we can talk about how we might trade these kind of patterns with these specific examples. So let’s get started, let’s go right to screen share and here we are. So in no particular order and certainly not an all encompassing list of sideways charts, we’re going to start off with the Pipeline Index. Now this is the US Pipeline Index. I mentioned on an earlier blog, there is no Canadian pipeline ETF or index, but in the US they have the Dow Jones Pipeline Index, as you can see here.

This does look like most pipelines. In fact in the blog I talked about Pembina which is a pipeline that we have traded at ValueTrend. But Pembina, if you take a look at the chart, looks identical to this pipeline index. So they’re all somewhat the same. There are some that stand out as worse than average. I talked on a recent blog about how TC pipelines are definitely in a bear market whereas obviously the pipeline index has been sideways for many years. With the exception of the 2020 COVID crash, the pipelines are stuck in a pretty sideways trading range. And that’s a good thing because in this bear market, when everything else looks like down here, they’re going sideways. So the view on the index would be somewhere around that low 700, 720 area you can see is the top and that goes right back through many, many years and some sort of a base that comes in around 580.

So that would be your trading range. And one of the things you want to do when you’re looking at a sideways trading pattern, and pipelines most certainly have had that, is to watch the momentum indicators. So we look for an approach to the top or bottom of the range and then we start looking at the momentum indicators. For example, we see here that when a bottom was hit, stochastics hit a low point and made a bullish crossover and that led into a rally to the top of the range. Well, we’re now sort of pulling back after it hit the top of the range and you can see stochastics pulled back, RSI has been pulling back and MACD, while it did hook up, MACD is a very long term indicator.

It seems to be failing. So probably in the pipelines, one does not want to jump in right yet. They may pull back a little bit more, but the pattern is there and you can trade it. So again, these are wonderful for uncertain markets because you know the plan. You buy near the bottom, sell near the top. If it doesn’t get any simpler than that, please let me know. So this is Regional Banking ETF. So US regional banks have not acted like the big banks. They’ve been going sideways and you can see the pattern is clear. We could over the same thing. I’m not going to go over all the different indicators, but you can see that same pattern, hooks up, hooks down and stochastic and RSI mostly. Again, MACD is more of a longer term indicator. But even money flow, you’ll see will usually hook up and reach an overbought point at some point, and then start to move down again. So this is money flow momentum at the top. I want to mostly focus on the patterns though, for the rest of this blog. You can see that the regional banks have an old lid, a point of resistance and if you know, technical analysis, and if you’ve taken my online course or read any of my books, you know, old resistance becomes new support.

So there’s your trading range. Something like 56 to 72. Again, use all your other indicators to time it a little bit more efficiently, but you have a rough idea of where you want to buy. It doesn’t always necessarily hit exactly the bottom or exactly the top, but it’s a range, an approximate range that you need to keep in mind if you want to trade any of these sectors or stocks we’re talking about. Now, Tesla. I did a blog specifically on Tesla. We brought Craig’s fundamental analysis in on the blog and my own technicals, as well as the sentiment, looked at the consumer sentiment to investor sentiment towards the stock. Nevertheless, sideway stock, very easy trader. You can see the momentum indicators cooperate here. Some are around 380 at the top, somewhere around 220 at the bottom. Okay. So again, you don’t enter any of these stocks until they break out, that is, in a long term viewpoint.

You enter them to trade. Now, if they break out past the old resistance point, yes, they become a longer term trading stock. But at the moment, all these stocks and ETFs we’re looking at are range bound so you traded accordingly. Now finally, well not finally, but another one that we have a position in although we don’t own a physical position in uranium, but we have a uranium stock. You can see this is the Sprott Uranium Physical Units. We don’t hold it. But we do have some uranium exposure to our portfolio and we like it quite a bit, although it is range bound, and you can see there’s an ideal place to buy and an ideal place to sell, at least according to pattern. It’s overshot it in the past, but generally there’s a bit of a pattern that’s been developing for the past year or so on uranium.

So trade the pattern. In this case, the Sprott Index seems to go closer around 13. If you really look, I drew the line 12 and a half, but probably 13 to around 17 would be a good range to be looking at. So again, use your indicators. You can see it’s kind of near the top of that range right now. Again, any of these patterns, if they break through that old lid, that old resistance point, the game has changed and you’re now into a breakout and a possible up trend. But for the time being, we must assume that the pattern is sideways until it proves otherwise. UPS, very good pattern. Old resistance became support and you can see somewhere around 165-170 at the low end to around the low 200’s at the top end. Same idea over and over again.

But these are just ideas for you to keep your eye on. UPS, in fact, seems to be going down to the bottom of its range, probably because FedEx reported pretty poorly so you might want to keep an eye on that. Before considering UPS, you want to see how UPS is doing fundamentally. Okay, healthcare. We actually had somebody ask us a question on our “Ask Us Anything” video and blog recently about healthcare and healthcare is one of those sectors that’s been absolutely sideways. Now, this is the iShares units that trade on the TSX, but the ETF contains lots and lots of global and US healthcare stocks. Canada itself actually doesn’t have very many. So because of that, you know, this is really representative of kind of a US market and for that reason, I compared it other US stocks. Very sideways, right near the bottom right now, probably not a bad place to be looking at it.

So next sector is a little bit more volatile, you can see, but it’s the base metals. Now I must point out I did a talk recently on a video about copper. Copper is in a little bit of duress. It doesn’t look as neat and tidy as this and copper does make up a good chunk of the metals. So keep that in mind that copper can influence this index and copper doesn’t have a very bullish chart. But if we just take a look at the index of metals itself, the producers, you can see that it has been in a sideways period. Yes, it broke out early 22, but basically it’s been sideways so probably a good place to look at it is as it gets around that $40 area. So again, the pattern’s there and then you use your other forms of analysis to confirm the trade.

So we’re back to pipelines so I’m not gonna keep rolling through the same charts over and over. I hope that helps you with a few ideas of things you could maybe watch to look for as far as entry points and exit points, as well as just understanding how you can look for these kinds of patterns and trade, even within a bear market. So hope that helps. And again, be sure to follow the blogs at valuetrend.ca and I implore you to take the technical analysis course. I strongly believe it’s one of the best investments you can make in yourself if you are serious about investing and profiting over the long term. Thanks for watching.

 

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