In this post, I’ll focus on setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trades.
These ideas are the end result of my process to identify stocks offering the right combination of growth fundamentals along with a proper chart setup. Live alerts are sent to Traders Hub members only.
Stock Market Update
A pair of reports covering the Federal Reserve’s dual mandate hit the “Goldilocks” zone for investors. First up was the Personal Consumption Expenditures (PCE) price index for the month of August. Headline PCE inflation was reported at 3.4% while the core measure that excludes food and energy prices rose by 3.0%. Both increases were less than expected and moderated from the pace seen in July. Next came the nonfarm payrolls report for September, which showed 29,000 jobs added during the month. The figure fell well short of estimates for 84,000 while the prior two months were revised lower by 60,000 total jobs. The chart below shows the three- and six-month average of payroll growth to smooth out monthly fluctuations.
While the jobs report missed expectations, the result wasn’t bad enough to spark fears of a more significant slowdown in the economy. But along with the cooler than expected PCE report, the outlook for the Fed’s next move took a dovish turn. Market-implied odds now favor the Fed holding rates steady when it meets later this month compared to a 70% chance for another rate hike before last week’s reports. Fears around the Fed are easing at a time when market breadth over longer-term measures are hitting extremely oversold levels. At one point last week, the percent of stocks across major exchanges trading above their 50-day moving average (MA) stood at just 25% in the chart below.
Breadth has been this oversold just one other time this year, which was back in late March as the S&P 500 fell near correction territory. Oversold conditions helped spark a reversal back then, and could do so again. That’s especially the case with various measures of investor sentiment showing heightened levels of fear in the market. Shifting views around the Fed and a slower pace of rate hikes could become the catalyst for a durable rally.
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