Welcome to our weekly newsletter where we provide an overview of the main US and UK indices, along with analyses of selected stocks that are outperforming the market.
Let’s get into this week’s newsletter!
US & UK INDICES OVERVIEW
This week the S&P 500 gained 0.8% to close the week at 4406, breaking the decline of the past three weeks. To date, August is displaying weakness with a decline of -4.0%. However, price remains 26% above the October 2022 lows, and the bull trend remains in place. This week there were 24 breakouts, a reduction from last week’s 103. Between March and July the S&P 500 recorded 5 consecutive months of gains; a modest pullback in August was to be expected. This is all part of trend trading, as price never moves in a straight line.
We currently hold 11 US stocks and 2 currencies. We have compounded a number of these assets, such as Eli Lilly, examined below; in turn, delivering excellent profit for our Phoenix community members.
On the weekly time frame, the S&P 500 remains above both the 50 and 200 SMAs (Simple Moving Average). The moving averages are aligned, indicating a consistent trend. Our proprietary tool, the Sublime trend filter, continues to present a green signal – for the 19th consecutive week – further reinforcing the strength of the current market. Whilst on the daily time frame, price is respecting the August support level and forming a potential XYZ pattern. Our view is price action in August is simply a pullback in a broader pattern of higher highs and higher lows which commenced in October. We will let price dictate our next move.
The FTSE 100, the UK’s premier index, also snapped a three week losing run, with a gain of 1.1%. Price remains in a range, with price below the 50 SMA and above the 200 SMA. Strong support is at a key pivot level at 7207. The all time high is 8047. We continue to monitor this index, waiting for confirmation of direction.
PERFORMANCE REVIEW
Eli Lilly and Company - LLY
Eli Lilly and Company (ticker: LLY) is a pharmaceutical company that develops and produces medication for various diseases and conditions. Its products are sold in approximately 125 countries. The company was founded in 1876 and is best known for its clinical depression drug Prozac. Lilly’s achievements include being the first company to mass-produce the polio vaccine and insulin.
We first entered LLY in May after the stock broke out above last year’s high and the $400 round number. Since then price has been extremely bullish, gaining 42%. We have captialised on this trend by compounding multiple times, whilst maintaining only 2% portfolio risk. Looking ahead, we can expect the trend to continue, with the moving averages aligned on both the weekly and daily timeframes, and price making a series of higher highs and higher lows. The next area of potential resistance is the $500 round number.
The total performance to date is a 723% Return On Investment and 14% Return On Capital, applying a full portfolio risk of 2%.
LLY is an excellent example of how a stock can form a bullish trend following a breakout from a key resistance level. The total amount of time required to set up and manage this trade has been less than 3 hours over 4 months – this is the benefit of trend trading; using higher time frames such as monthly and weekly charts to avoid the noise and stress of shorter time frames. This approach enables busy professionals the freedom to pursue other interests and avoid hours each day in front of a trading screen.
OUTPERFORMING ASSET FOR THE WATCHLIST
Cadence Design Systems Inc. - CDNS
Cadence Design Systems, Inc. (ticker: CDNS) is an American multinational computational software company, founded in 1988 by the merger of SDA Systems and ECAD, Inc. The company develops software, hardware and intellectual properties (IP) used to design chips, systems and printed circuit boards, as well as IP covering interfaces, memory, analogue, SoC peripherals, data plane processing units, and verification.
CDNS has demonstrated a consistent upward trajectory since 2012, making it an appealing stock for long-term investors. Between December 2021 and February 2023, the stock experienced a period of consolidation. However, in March, the stock broke out of this range, resulting in a gain of 20%.
With a gain year to date approaching 50%, CDNS is high on our watchlist.
On the weekly time frame, CDNS continues to trade above the 50 and 200 SMAs, indicating positive market sentiment. Our proprietary tool, the Sublime trend filter, remains green, reinforcing the bullish outlook. Moreover, the alignment of the moving averages further supports this positive sentiment.
Similarly, on the daily time frame, the Sublime trend filter remains green, further evidence of a favourable market environment. CDNS is trading above the 20, 50, and 200 SMAs.
Looking ahead, the next notable level of resistance lies at the $300 round number. Should a continuation pattern emerge, our Phoenix community members may find an opportunity in a stock that has yielded profitable trades in the past.
Looking Ahead
Price action on higher time frames, such as monthly and weekly, tells us the momentum in the main indexes continues despite the recent pullback. Our position is the bulls are in control, resulting in opportunities for savvy investors, such as those in our Phoenix community.
At Sublime, our unwavering commitment lies in conducting thorough analysis based on objective data and factual evidence presented in the charts. By adopting this approach, we aim to provide valuable guidance to our esteemed Phoenix community, collectively exploring opportunities that hold the potential for long-term, profitable trades.
Keep it simple. Keep it Sublime.
The ST Team
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