Your 2021 Playbook: Three Keys to Trading the Year’s First Week

Editor’s Note: Get ready to kick off the year with trading expert Chris Johnson. He’s walking you through exactly how to trade the first week of 2021 by sharing the top three market movers to watch… and his top stock picks. Start the year off right by checking it out…

I don’t need to tell you that 2020 was anything but typical for the market.

And from an investor’s perspective, 2021 is kicking off with a similar tone. Stocks started the first trading day of 2021 in the red across all three major indices.

It appears the market is facing another week of potential uncertainty.

That’s right, this week’s trading is likely to see a few curveballs thrown its way, as the political theater in D.C. has found a way to extend its show for yet another week into the new year.

One of the biggest drivers of the market is and always will be headlines. And as much as stocks would like to be focusing on technical breakouts and new highs, they’re going to have to deal with a few potential bumps in the road before we get there.

But each of those “bumps” can still provide profit opportunities for traders like us.

Here are the three keys to this week’s trading – plus, my top bullish picks…

The Three Trading Keys for 2021’s First Week

  1. The “Risk On” Trade
  2. Investors celebrated the S&P 500 hitting new all-time highs on the last trading day of 2020. But in-the-know traders were watching something else…

    The Russell 2000 Index.

    This small-cap index wasn’t rocketing to new highs with the rest of the market. Instead, it spent the last week of 2020 pulling back to its 20-day moving average.

    That small dip suggests that speculative traders may be second-thinking the market’s trajectory as we head into the new year.

    Why is this important?

    The Russell has spent most of 2020 leading the market higher – a sign that traders and investors took to mean that the market would continue its climb.

    In other words, they were speculating. And speculation is one of the most important drivers of bull market activity. Without it, we’re likely to see a rough 2021.

    This week, we want to see the Russell 2000’s ETF, the IWM, hold support at its 20-day moving average and then move to new highs to confirm that the bull market run is ready to continue in January 2021.

  1. Headline Risk
  2. After two weeks of relatively quiet trading, this week will be packed with headline news and data, from the Senate runoff in Georgia to the certification of President-Elect Biden’s victory.

    Historically, we see an increase in trading volume as the market gets back to normal trading patterns, which means any unexpected headline activity could throw things off on a tangent.

    Here’s what to watch…

    Tuesday’s Senate runoff: The balance of power in the Senate will be determined by Tuesday’s runoff results. Expectations are that the Republicans should be successful in winning the two remaining Senate seats, which is what I’m watching closely. Here’s the result that changes things…

    If the Democrats are successful in their bid for these seats, it will shift the balance of power in the Senate to the Dems. This could provide a much easier road for President-Elect Biden’s first two years in office.

    But how does that affect your portfolio?

    Well, traders will translate this into a green light for healthcare, infrastructure, and clean energy initiatives. We’ve seen these sectors outpace the market since the election, but you haven’t seen anything yet if the Senate switches hands.

  1. December Jobs Report
  2. Amidst a flood of economic data getting ready to hit the market is the December jobs report. This is the one to watch this week.

    Last month’s report showed an increase of 245,000 jobs for November. As of now, the expectations for December is around 125,000.

    This is a high-impact trading number given the increased concern that the economy is headed for a double-dip recession. Economists have been concerned that the economic recovery has lost its teeth as we start to see leading indicators warn of another slowdown in 2021.

    The last thing that investors want to see is a dramatic dip in the employment numbers with market valuations nearing their bubble levels.

    Looking at the volatility in this number over the last year, the market should be able to deal with any jobs number north of 110,000. This would at least maintain the growth that we were experiencing ahead of the pandemic outbreak.

    Anything lower than that will put the market in a defensive posture as we head into the earnings season that kicks off in the third week of January.

Three Bullish Stock Picks for the Week

My models remain bullish. This means that investors should look to buy the short-term dips in strong sectors of the market. We should continue to see trends weaken in the oil/energy, utility, and transportation stocks as investors continue to move back towards technology stocks.

And when it comes to technology stocks, bigger isn’t better.

Companies like Facebook Inc. (Nasdaq:FB), Inc. (NYSE:AMZN), Alphabet Inc. (Nasdaq:GOOG), and even NVIDIA Corp. (Nasdaq:NVDA) – which is one of my favorite semiconductor stocks – have become overcrowded with buyers through 2020. This means that that these stocks should spend some time resting before they hit their next bull run.

Instead, look at the aforementioned small-cap sector and clean energy technology companies for your portfolio’s technology fix. Here are three bullish stocks on my radar:

  1. Nio Inc. (NYSE:NIO)
  2. This Chinese automobile company just completed a successful test of its bullish 20- and 50-day moving averages, capped by the company’s press release that reports December year-over-year deliveries increased 121.0% to 7,007 vehicles.

    Remember, October’s production numbers showed 5,000 cars delivered before the stock made a 70% run.

  1. iShares Silver Trust (SLV)
  2. I forecasted a $30 price or higher on SLV shares in October. For a while it has looked like this wasn’t going to happen, but the political results and pending (yes, there is still more coming) stimulus plan are fueling a technical run in SLV shares again.

    Shares of SLV are back above their 20- and 50-day moving averages, which are both turning higher into bullish trajectories.

    The Silver train is getting ready to run through $30 and higher in the first quarter.

  1. Sabre Corp. (Nasdaq:SABR)
  2. For those of you unfamiliar with SABR, the company owns and operates the largest air booking distribution network. I call it one of the “First Touch” recovery companies for the travel sector.

    Shares of SABR are trading higher after a blockbuster (relative) travel season. Let’s add that to the fact that the world is finally starting to see the distribution of the COVID-19 vaccines. While a full recovery in the airline sector is still in the distance, some First Touch companies like SABR are already taking off.

    SABR is getting ready to break through the $12.50 price, which should trigger a rally that will drive it to a $15 price target.

2021 is set to be a great year. And as a trader, you can profit in both bullish and bearish directions. Just keep checking your inbox for your daily Straight-Up Profits emails. I can’t wait to walk you through the year.

Until tomorrow,

Chris Johnson

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