Trading The Trend - Finding Big Winners In The Next Bull Market

3rd Apr '20 by Michael Taylor

31 comments 4911 reads

A few Mello moons ago, in the good old days when we were allowed outside to do various fun activities that are now strictly prohibited, I recall a young chap (I believe his name was Glen Arnold) mentioning that in the 2015 commodities crash, he looked at the lowest cost producers. And then he bought them. He bought the last men standing. It stuck with me because I knew that I needed to have a serious game plan for when the opportunity comes too, as he did very well by having a plan and executing it.

I’ve looked forward to a proper early stage bull market since I started my career. It may take a while before it comes, but when it does stocks will start moving quickly. I have studied the charts of stocks back in 2008 and one thing was clear: once they had risen 100% up from the lows the trend would almost always continue upwards – you just needed to find a good entry point and get on board.

Building a game plan

In trading, we want to find opportunities where the risk/reward is skewed in my favour. That is, where we can risk some to hopefully make more, and repeat this edge over the long term through robust position sizing and risk management.

The market is manic at the moment and I have started to draw up a list of shares that I believe offer outsized returns pending various scenarios.

I would be delighted to hear your list too, as many of my good trades have come in the form of leads from others. If there is one thing I have found it is that sharing knowledge can supercharge performance.

We know that some companies are going to go bust. We know that some companies are priced to go bust, but won’t go bust. Being able to spot stocks that are undervalued and have been savagely sold off so far can be a profitable trading strategy as we saw a few articles ago, but this time thinking more longer term and getting on board a trend. These aren’t investment ideas, and I don’t care much for the fundamentals of a stock, but I do want to find stocks that have the potential to rally strongly.

JD Wetherspoon or Revolution Bars Group?

I previously had JDW on my list. Everyone…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Jamie Green

4th Apr '20

House builders; I work for one myself and have been paying close attention, particularly to Vistry Group (Lon: VTY) prior to the crash they were absolutely flying and recently acquired the Linden Homes arm of Galliford Try. The price has fallen off a cliff from circa £14.00 down to just above £5. Could well be more pain, especially if recession is upon us but I spent nearly 10 years with Linden Homes and if there’s a CEO you want at the helm in times like these, it’s Greg Fitzgerald.

See my comment above, add Vistry Group to your list.

Tonysaparito

Good evening Michael,

Thank you for illuminating article...and quoting what I wrote to you last week.

Before, I give my view I would ask if you could consider explaining a bit more about resistance levels on your charts, as it was difficult to read your charts with clarity.’

Whilst I know a little about charts and the value you place on them , I suspect your knowledge is far deeper than most of us and your education to investors such as me and others on Stockopedia could at this juncture prove invaluable....I hope you not do mind such a request .

Turning to the shares you mention , I have been following Greggs Greggs (LON:GRG) for about 2 years but have always considered their shares quite expensive and over bought, however, in the new environment their offering of tea and a baguette for circa £3 is a compelling , and always has been compelling , compared to Starbucks buckets of coffee for almost £3 ...and McD .

Personally, if Greggs fell to £1300.... or thereabouts , I would add them to my “ New Era Portfolio( NEP)

Notwithstanding the above, another company I would love your view on is Rock Rose Energy £ RRE..

Despite the recent rally , due in no small part to Trumps recent tweets, my simple view is that the price of oil will relapse again due to the fact that it’s not certain , that Mr Putin or Crown Prince or Trump can get an agreement to cut production to a level to stop the world eventually running out of land storage or floating storage capacity...however, at some point in the future, refineries , that have been shut down due to lack of demand , will have to be rescheduled for the pick up in demand , which will be swift ...and the time lag in getting those refineries up and running again will cause a shortage and rapid rise in prices once again.

So your view or the views of others on Rock Rose Energy going forward will be welcome.

Best wishes

Nice one Jamie...Vistry Group looks interesting and thanks for your insight for us here on Stockopedia

Berksbee

5th Apr '20

Sympathy with the international comment - but would trust the management if they did. If MacDonald's can work in xyz then I think Greggs could also. They are all about a super efficient supply chain and they can be very agile with their offering - ref the Vegan SR.

Pete E

8th Apr '20

I have held them a couple of times but the return to shareholders is poor. Dividends are minimal and have not increased in 5+ years, without that hope they are worth little. CG is on popularity only.

9th Apr '20

Well looking at Greggs (LON:GRG) that was a timely call of yours. Though I now think they are looking a bit toppy short-term. However, long Term : 1) they are not going bust. 2) they will have less competition.

BurnageBete

Agree regarding Microsoft, the ultimate Blue Chip IMO. But I think that the dollar might crash along the the US economy. Might be worth waiting as they should also prove stong in a US recession.

Anyone have any thoughts?

Rusty2

I think the rate of exchange is a important factor, I was surprised when when I sold a few US shares when they fell about 10% that I did not lose much money, this was due to rates of exchange, buy at £1 = $1.25, sell at 1.16. Not sure the $ will be weaker than the £ going forward though. I'm picking a few US stocks now but only small positions. Microsoft is on eof them, also looking at Apple and Adobe, plus several others I sold out of.

"If there is one thing I have found it is that sharing knowledge can supercharge performance"

ramping?

Buddy

Hi. Thanks. Which lost cost, cash flush oil producers are you looking at?

sorry, it should read "low cost"

My problem with Scottish Mortgage Investment Trust (LON:SMT) is that it's largest holding is Tesla, over 10%. Depends how you feel about Tesla but it's not a company I want to invest in. For US/Int. exposure then Fundsmith would be my choice, largest holding is Microsoft at around 6%.

Michael Taylor

10th Apr '20

Ramping can also supercharge performance Pete - though I suspect you would have difficulty moving the price of any of these stocks.

You might have a chance at moving the price of Revolution Bars Group given that its currently £7.7m market cap but punters want to buy oil and mining stocks, not boring high street businesses.

Agree Berksbee - I'm not looking at buying anything until there are clear trends upwards. Not short and sharp rallies in a bear market.

Ken Lowes

Hi Michael

I really enjoyed your free book, I expected the worst and got one of the best. Now for the point at hand. I don't see any future in going long in the next few months or even couple of years, unless you are swift of foot, but that can be dangerous over rocky terain ! Looking back over the previous four bear markets that I have been involved in only one was a true V, 1987 and that was the one that cost me the most, even then it took a few more years to claw it's way back to the previous high. The others fell -retraced about 60% of the fall and then down again to plumb the depths, which in 1972/4 was about 72% or FT30 143. I can see big gains been made in gold and silver, which usualy take off after the fall and as the market is recovering. If I am wrong that won't be unusual, my timing is always "too soon", but rather that than too late. Looking forward to the next book.

Regards

Ken

11th Apr '20

Ken - thank you. I put a lot of effort into my book, so it's nice to hear you say that!

I've not experienced a bear market before, so this is my first one. I'm a trader though, so the volatility suits me. I'm not overstaying my welcome in any single stock and I'm ruthless at cutting my losses.

My opinion is always that we will see fresh lows, but I'm always ready to change my mind.

As I've said before, if anybody knew for sure what was going to happen, they'd be sat on their Caribbean island in the sun!

Tony - my apologies for my delayed response. I will try to keep on top of comments in the future. The market is sapping a huge amount of time at the moment and whilst it's ripe for trading that's where my focus needs to be!

Happy to offer my opinion, though I have to say that I use charts to try to gain an edge and an idea of the price action that is happening. However, charts do not predict the future.

Re GRG - 1300p were the recent lows, and so myself and other market participants will be eyeballing that level as key. If the support holds, then it becomes a self-fulfilling prophecy - others will be happy to buy at that level.

If that support fails, then shorters like me will hit the bid and other traders will dump their stock. I look for key levels in stocks, and I don't do anything too complex.

RRE - I did love this stock and it was a big winner for me in 2019 (alongside GRG), however I opted to unwind the bulk my position from 2000p-2100p. The reason being is that I was sat on a 200%+ profit and as someone who relies on trading to pay the bills it made sense to take money off the table and into my pocket. I then got stopped out of the rest of my position as the stock tumbled downwards.

Whilst the fundamental disconnect appears to be wide, the market doesn't like the stock. Why? I would recommend to take a deep look at management.

As for the chart - I wouldn't touch it. I buy stocks that are trending up, and not down!

I like IGG too Michael - and wrote about them in my column at IC. I want to take a long position trade if the price can break 740p.

Taking small positions is great. When market volatility increases, we need to protect our accounts at all costs. Think of the downside first always.

ken mitchell

Ken

Are comparisons with previous bear markets of little use once bearing in mind that this is a unique one off crisis that has never happened before. I.e never before a total shutdown nor the £trillions being thrown at it.

The current rally seems so unjustified bearing in mind the risk of a Great Depression ahead, and so presumably another big dip soon looks very likely as markets wake up to the Depression risk, instead of current focus on quick and full V shape recovery. But also a chance the markets are right and looking ahead to normality returning and/or the positive effects of confetti money?? It’s so often guesswork.

Trading the Trend - finding big winners in the next bull market

Unlock the rest of this article with a 14 day trial

About the Author

Michael Taylor

31 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...