Trade based on where the market is going, not where it is now

A few days ago, on 5th April, I had shared a bullish view on a stock in the Packaged Foods & Meats industry. The stock was $BGS. You can find the forum post here.

One of the deciding factors behind that idea was industry acceleration. The industry (and sector) acceleration helps you see where the industry (or sector) is likely to go. And you can make more efficient trading decisions using that insight instead of only relying on where an industry or sector is at present relative to others. Both the information are useful in making trading decisions, and you can find them out in real time using CUE systems.

 

BGS Edge 2019-04-05_14-25-55

Though the industry was weak relative to others, as seen from the 1-day score (the left most industry 1D industry strength score column) being in weak magenta color, the Pace column was showing acceleration (as marked in the snapshot above – taken from the forum post).

The stock was still in a downtrend. However, it formed a triple-bottom, and one could start to look for a buying opportunity. If the industry and sector were going to continue to accelerate, it was likely that this stock would also go up. Not guaranteed, but probable. You may check out the forum post on the detailed analysis of BGS. 

For now, let us continue with our discussion on sector-industry rotation and acceleration.

How did the sector and industry do since then?

I carry out a top-down analysis covering the market-sector-industry-stock analysis every weekend. I shared the sector scorecard and heat-map in the market roundup of 15th Apr before the USA market open. Here is the snapshot. The entire video recording is available here.

 

As you can see from the weekend scorecard, Consumer Staples was the most accelerating sector, shown by the cyan and the largest Pace score. Looking at that one would continue to look for buying opportunities in this sector.

Now, fast forward one more day. After the market close of 15th Apr, one of the CUE system traders, Mr. Kim, sent me an email analyzing a stock that appeared bullish and ready with a CUE trend-following Go With Flow trade setup at that time. The stock was $K (Kellogg). I found his analysis to be a perfect example of CUE 360° trade where sector-industry-fundamental-technical forces were all aligned. And hence decided to share the trade here in this blog.

Here is a CUE 360° analysis of Kellogg as of 15th April market close. All the snapshots were taken on 16th April, before the market open.

1) The Consumer Staples sector became the best performing sector on 15th April as shown by the 1-day score.

2) It continued to remain the most accelerating sector as shown by Pace column.

Notice also, how the sector strengthened between 15th and 16th April. The sector score moved up from six to eleven. Looking at sector acceleration, you could anticipate such a move and be ready to buy stocks in this sector.

What about Kellogg’s industry Packaged Foods & Meats? Above is the industry scorecard of all industries in the Consumer Staples sector.

3) The Packaged Foods & Meats industry was also accelerating, shown by the Pace color in cyan.

4) And the industry was already strong, shown by 1-day score turning cyan from magenta.

The CUE stock scorecard above showed the fundamental strength of Kellogg:

5) The stock was optimally valued; its Valuation score was in cyan.

6) Kellogg also paid a decent dividend yield of 3.8%. That could be another reason to buy this stock at a low price level.

So far, we had identified a strong and accelerating sector, Consumer Staples. A strong and accelerating industry within that, Packaged Foods and Meats. And a fundamentally robust stock (value stock with reasonable dividend yield), Kellogg.

Before buying the stock as a CUE 360° trade, you would wait for a low-risk buy setup. CUE systems signaled a Go With Flow trend following buy setup on 15th April. You could easily find the trade using CUE Sonar search program that searches for trade setups (and not for indicators crossing thresholds). And you could apply unambiguous checklists to confirm the trade in a matter of minutes, if not seconds.

 

Let us have a look at the signals on the CUE At A Glance weekly-daily chart combo to see what trade setup if any, we could identify in the stock.

7) In the weekly CUE Backdrop chart, Kellogg was creating a false downside breakout and turning up. At the right edge, Backdrop candle color was cyan, bullish and the candle shape was also bullish (hollow).

8) In the daily Hop On or Entry chart, CUE system displayed the Bullish Headwind reversal signal, which so far has caught the very bottom of the stock.

9) The stock was going up with price being supported by a Memory support auto-smart trendline.

10) At the right edge in the daily chart, Flow candle color was cyan, bullish.

If you applied all the checklist conditions, you would be able to confirm a Go With Flow trend-following long trade setup in this stock. This long setup would be the first possible trend-following long trade setup in Kellogg after its recent decline.

Will the stock go up? We may watch to see what happens. Its earning is due on 2nd May. CUE technique guideline suggests to adopt a trading strategy and instrument that takes into account the uncertainty associated with the earning move. 

That said, as of the analysis date of 15th April market close, Kellogg is presenting a compelling case for considering a buy position in the stock. 

The starting point of identifying this trade idea was a sector-industry acceleration that helped you see where the sector & industry were going. And you could combine that information with fundamental and technical analysis to reach a CUE 360° trade.

 

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