Here’s to wishing you and yours a great 2018 and a prosperous start to a new trading year! I would like to thank a number of you who continue to support my work:
Thank you for the gracious donations many of you have made supporting my work! Everything I’ve done on this website so far has been totally free including the Stage Analysis Screener and all the content I’ve created. It’s possible that will change at some point in the future, but until then I sincerely appreciate the support.
Thank you for the opportunities to interview on Financial Sense, Palisade Radio, and The Next Bull Market Move and for featuring my work on your respective sites.
Thank you to all other websites who feature my work and who have linked to content on my site.
Thank you to all those who have left feedback on my website, YouTube videos, through e-mail, or re-tweeting my work on Twitter. I’ve heard from people all over the world and continue to get a ton of great feedback!
I have a lot of ideas for new content on the site in 2018 so stay tuned! As always I’ll be taking a look at the markets from a Stage Analysis perspective, if you haven’t read Stan Weinstein’s book yet now is a good time to get started!
I ended 2016 and started 2017 with a big focus on uranium stocks. This was because they were ripping out of a Stage 1 base on huge volume towards the end of 2016. Uranium stocks had been destroyed for the last 5 years so this had the potential to be a monster trade.
The stocks did well for a few months and by taking some partial profits I made money on some of my uranium positions. But I also held onto a few uranium miners too long as the rally started to fizzle out in March and gave back some profits. I ended up moving on to other sectors as the uranium miners eventually broke down and went back into a Stage 1 base until the end of the year.
I made huge profits in gold miners in 2016 which enabled it to be my best year performance-wise since I’ve been trading. But fortunately using my Stage Analysis system I avoided gold miners for the most part in 2017 as they were simply drifting sideways in a consolidation the entire year. Even when many were turning bullish on gold in September I looked at the charts of many gold and silver miners and saw no volume increase that almost always accompanies a new rally. You can see that in the chart below of GDX where even though it started rallying back then volume was still well below average. By avoiding gold miners I was able to trade other sectors that were in strong uptrends in 2017.
One of the other mistakes I made early in 2017 was being a little too focused on uranium. This made me miss some awesome Stage 2 breakouts early in the year in stocks like AAOI and SQ (shown below). If I would have diversified and taken trades in those stocks when they broke out, I could have added to those positions at the same time I cut back my uranium positions. This was a good lesson to learn in that if you see multiple sectors breaking out then there’s no reason not to take trades in each of them, since it’s impossible to know which rally will be stronger.
I applied this lesson for the rest of 2017 and it worked well for the last 4 months of the year since there were so many sectors breaking out such as tech stocks, bitcoin-related stocks, cannabis stocks, and some commodities producing stocks towards the end of the year.
DAIO was my biggest winner for the year and a stock I detailed in the Real Trading Report. I made money in every stock I discussed on the Real Trading Report in 2017 except for INTT. This included the tech stocks TEAM, TWTR, COHU, and NVMI. Many of these stocks have pulled back since November but by selling and taking partial profits on the way up I was able to capture gains in these stocks. For example for DAIO I sold shares in the 13s, 14s, 15s, and 16s on the way up and now it has pulled back to the 12s, but it is still above the 30-week MA. If I had not taken profits on the way up then I would have left a good portion of my gains on the table.
Bitcoin was another lesson learned for me in 2017 because I totally avoided it. I did make some money on some bitcoin related stocks but even then I let a little bias against Bitcoin derail me from staying in longer on some of the trades. The lesson I’m taking away from Bitcoin: just trade the charts, fundamental opinions on any market are totally worthless. It’s amazing how many Bitcoin experts there are now compared to 12 months ago when no one cared about Bitcoin, and the only reason for this is because of what has happened on the chart. If you apply Stage Analysis properly you can get in early and profitably trade any market, including a totally new asset class like Bitcoin.
For example if you look at the chart of GBTC below it broke out of a beautiful Stage 1 base in May, then consolidated and broke out again multiple times. Even as late as early November it had another nice consolidation from which it broke out from and more than tripled, and that was after Bitcoin had made some monster gains for the year.
Even some of the “Bitcoin” stocks which many could be nothing more than scams could have been traded easily with a system like Stage Analysis. If you look at RIOT below it broke out of a beautiful Stage 1 base in late September. Then consolidated for a few weeks and had another monster run after breaking out above the 8-9 area.
The last two months of 2017 the biggest winning sector besides Bitcoin has to be cannabis related stocks, and fortunately I’ve been all over this sector. I highlighted ACBFF in a post in November and this stock has blasted off along with stocks like TWMJF and APHQF, all three of which I traded.
This sector has been a great example of how stocks in a hot sector break out at different times, I’ve traded probably at least 10 other cannabis related stocks over the past two months since so many of them have broken out of bases but not at the same time. When I’m scanning and evaluating stocks in a sector I’m always on the look out for stocks that haven’t broken out yet if they are in a strong sector where most of the other stocks have already moved. A strong sector can lift all boats including stocks that lag, and sometimes the lagging stocks can turn out to be just as big if not bigger winners than the initial stocks that start breaking out first.
I recorded a cumulative 50.4% gain for my trading in 2017 which was 31% higher than the S&P 500 at 19.4%. The most important lessons I’m taking away from 2017 are:
Taking partial profits on winning trades is an absolute necessity
If multiple sectors are breaking out of Stage 1 bases diversify across them. It’s possible some won’t work out while others will, but impossible to predict
Just trade the charts and the Stage Analysis system, they can be applied to any market and have no bias
Opinions, fundamental analysis, and predictions are not useful and should be ignored
I have no predictions for 2018 and I would highly encourage anyone reading this to ignore every single prediction they read anywhere since none of them are necessary or helpful. For example no one predicted what happened to Bitcoin this year but that wasn’t at all necessary to make money on Bitcoin.
Hi Justin, welcome back to The Next Bull Market Move. It’s been a while since we last spoke and as it’s nearing the end of the year I thought it would be great to get your thoughts regarding the markets in 2017. Let’s start with Gold. It looks as though we are still consolidating since the run up we had last year and sentiment is looking bearish. How is Gold looking to you?
Gold is still moving sideways right on top of its 30-week moving average. The gold stocks are acting slightly weaker than gold if you take a look at GDX or GDXJ. They are both trading more below their 30-week moving average than gold.
Silver is also acting weaker than gold which typically isn’t a good sign. One thing I have noticed is how the volume has collapsed in GDX and GDXJ as this consolidation has dragged on. That can be a bullish sign as volatility and volume often collapse before a market moves higher, especially for a market that has been basing for a while like gold and gold stocks.
I’ve been out of gold and gold stocks all year and I don’t see any reason to be in them until we see them move above the 30-week moving average on increased volume in a new Stage 2 breakout. Until then I’ll keep monitoring the situation. Certainly we could see things change dramatically at any time.
Let’s move on to Uranium. Over the last few weeks it looks as though the sector wants to break out, your thoughts?
After the Cameco production cut announcement we’ve seen almost all the uranium stocks move above the 30-week moving average on increased volume. This includes Uranium Participation Corp. which tracks the price of uranium.
I like how the volume in that fund is actually heavier than it was during the breakout in uranium stocks we saw around the same time last year.
We are at the point now where the rubber needs to meet the road in uranium stocks. We’ve consolidated around the 30-week moving average after the initial breakout. If this is a real breakout it should start to move higher again over the next couple weeks.
If it doesn’t it will be a higher chance that this a fake breakout and the market will consolidate sideways for a while longer. It’s definitely not abnormal to see multiple fake breakouts in a Stage 1 base, that’s what wears people out until the real breakout happens.
What has been the biggest surprise of the year for you? Bitcoin comes to my mind.
I’m simultaneously surprised and not surprised at all by what has happened to Bitcoin over the past year. I am surprised by the amount of money that has poured into it, I never fathomed over 300 billion dollars would pour into this asset class. It has also been a lesson for me because I made a fundamental judgement on Bitcoin back in 2012 that has kind of kept me out of being interested in trading it. Basically I decided that I didn’t think it had any intrinsic value so it couldn’t be considered a real form of money.
What I should have done was just traded it like any other Stage 2 breakout and I could have captured the biggest winner of 2017. I’ll definitely learn from that for the future. What I find unsurprising is that humans have blown another bubble, we seem to love to blow bubbles periodically and this is yet another example. In my lifetime I’ve already experienced the Internet bubble, the housing bubble, and huge parabolic moves in other assets like oil and uranium. My lesson learned from Bitcoin is to just trade the chart like any other asset class and apply the Stage Analysis system. It would have worked beautifully on this huge move in Bitcoin from 2015 until now.
Which sectors in 2017 have done well for you? And what lessons have you learnt from this?
I took some good profits on uranium stocks at the start of this year when they were exploding higher. But I also let a few winners turn into losers, I used that as another learning experience. Besides that I’ve done very well in tech stocks over the last three months of this year. I’ve been discussing real trades I’m taking on my website since September and you can see some big winners I identified if you go back and look at some of my posts at www.nextbigtrade.com.
This has proved to me again that I have a system that I can trade any market with, and that’s a big advantage because every market goes in and out of favor. I want to be always focused on the markets that are in favor, and in particular getting in early on new uptrends.
I think it’s interesting that certain elements of the trend analysis you follow are designed to be logical and non-emotional, that it’s based on a few key indicators that provide a guide, but that the market itself is emotional and irrational. Do humans generally get in the way of winning trades and investments?
Humans are wired to sell their winners short and let their losers run. This is the exact opposite of winning trading. This happens because most people have no system to trade the markets so they become a slave to their emotions or whatever biases they have, or they just follow a guru who has no system either. You have to have a system that lets winners run and cuts losers short to be successful trading the markets, and I’ve found that using simple trend following like Stage Analysis is the easiest.
And as a final question, what are you looking forward to in 2018?
I’m looking forward to applying the Stage Analysis system to the markets again next year and seeing what markets that takes me into. Or if we get a bear market next year I should be in cash and preserving my capital. Either way I will be trading what the market gives me. One other thing I continue to focus on is position sizing since I think that is another great way to manage risk besides having a stop loss signal.
What’s interesting about the nature of markets is just when one side of the battle between buyers and sellers thinks they have it completely won, they are at their most vulnerable. Bitcoin has gained over 100% since the start of October on top of an over 900% gain for the year 2017. Since Bitcoin broke out into a Stage 2 advance in 2015 around $250 it is up over 40x. Intoxicating gains that everyone is captivated by currently and wishes they could go back in time and capture.
The reality though is the best time to buy Bitcoin was back in 2015 and 2016 when few were talking about it and it was emerging out of a Stage 1 base. Now everyone is talking about it and greed has taken over and the Stage 2 uptrend has gone into a breathtaking parabola. Earlier today Bitcoin was more than 130% above it’s 30 week MA which is the most overbought it has been since this uptrend began in 2015. Amazingly this is the third time in the last 6 months the price has stretched more than 100% above the MA, that is exceedingly rare for something with a market cap of over $150 billion.
For comparison purposes when Cisco Systems made its final parabolic move into the first quarter of 2001 during the Internet bubble it had a market cap of around $500 billion and only made it to 50% above its 30-week MA.
QUALCOMM reached a market cap of $100 billion during the same time period which is more similar to Bitcoin but was only able to get 150% above its 30-week MA, which is close to where Bitcoin is currently.
It’s impossible to tell where Bitcoin will top, or even if it does move lower from here, whether this area will be “the top”. But it’s easy to say Bitcoin is the most overextended since this uptrend began because it is. And Bitcoin has no price support in the chart all the way back down to the $3000-$4000 area which is more than a 50% loss from here.
One of the most bullish aspects of the uranium miners that I haven’t seen discussed anywhere else is the positive divergence between the miners and the price of uranium that continues to this day. Take a look at the charts of U.TO and URA below and notice how the uranium miners (URA) have put in 3 minor but important higher highs (denoted by the circles on the chart) at the same time the price of uranium (U.TO) was making lower lows. Often this type of action is seen in market bottoms where further declines in the commodity fail to produce lower lows in the commodity producer. This means the shares of the commodity producer have shifted into stronger hands, they are no longer willing to sell even if the underlying commodity continues to decline in price. This is what leads to explosive Stage 2 breakouts because once demand comes back in there is literally no one left to sell, and the stocks start ripping higher.
U.TO took fairly good volume last week doing 3x average weekly volume. The volume in URA was also over 2x average volume on the previous week. The bigger the volume on a Stage 2 breakout the better, and if we continue to see increased volume in these over the next few weeks that’s a good sign.
I took initial positions in UEC, URG, and UUUU to play this potential new Stage 2 breakout in the uranium miners. I’ll be watching the price action as always and using the 30-week moving average as my risk management line and indicator of whether to stay in the trade.