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Is Now a Good Time to Be Swing Trading?

The current conditions suggest this is a good time to be swing trading on the long side, based on the price moving with momentum toward resistance on major indexes.

A common problem in trading is not trading at the right time, trading too often, or not capitalizing when opportunities are present. So with that in mind, these articles will look at the current conditions of the market and determine whether I will be putting money into swing trades, reducing position sizes, or sitting on the sidelines.

Since I am a price action trader, I look at price, common price patterns, and trend tendencies to assess whether now is a good time to be swing trading. The various sectors are also looked at to give an idea of where favorable swing trades are occurring or could develop.

Swing Trading Right Now – September 12th Edition

First let’s look at the S&P 500. It is a good indicator for what trading is like overall. When conditions are favorable in the S&P 500 it is will likely to be easier to make money using trend-based swing trading methods in a wide array of stocks.

  • The S&P 500 is making a push toward new highs. That’s bullish. In an uptrend we expect resistance (old highs) to be broken. Only when it doesn’t break it is it something to be concerned about!
  • The price action is making higher swing highs and higher swing lows. That’s bullish.
  • Just broke out of a volatile range to the upside, and is now pushing toward those new highs. That’s bullish, and that range should now act as support.
  • Have had three 80%+ upside days in early September. Historically, this has produced averaged gains of 13% over the next year. This means we are in a bullish cycle. This is an article on its own. It also tends to be bullish in the short-term.
  • The NYSE Advance-Decline Line has already moved to new highs, showing large breadth on the long side. This positive divergence as resulted in the S&P 500 and/or DJIA moving to new highs on almost every occasion in the last 80 years.
  • A drop below 2822 means the market is entering a ranging or bearish period. Ease off on swing trading long positions, if this develops.

S&P 500 analysis for swing trading purposes

The Nasdaq 100 has a very similar picture to the S&P 500. It is in an uptrend and moving toward a new high.

The small-cap indexes remain well below 2018 highs, but are testing the top of a descending channel. A breakout is bullish and would mean that more small caps are moving up. This would indicate that small caps are also good for swing trading on the long side, and also indicates that investors are speculative which favors a bullish outlook.

small cap swing trading analysis

Sectors and Swing Trading

Using Finviz’s Screener Tool, we can see the sector ETFs listed (my created list) in order of performance over the last month. That means the sectors at the top of the list performed the best, while the ones at the bottom performed the worst over the last month (moving left to right).

sector charts for sept 12

Industrials (XLI) are looking strong and near a breakout. REITs (RWR) just broke out (not a traditionally a big mover, but this can be compensated for with a larger position size since the stop loss is typically closer to the entry point). Financials (XLF), Consumer Discretionary (XLY), Technology (XLK), and Materials (XLB) are all heading toward recent swing highs.

Here is the sector performance for different time frames.

stock sector performance sept 12

Other Swing Trading Tidbits Right Now

Over the last week, you may have noticed a lot of former very strong stocks broke significantly to the downside, and a lot of former pretty weak (but solid) stocks had big jumps. This is a topic all it’s own, but investors seem to be moving away from growth stocks and more into value names which have been beaten up…at least in the short-term.

Value stocks—those typically stable ones with low price/earnings (P/E) ratios—have drastically underperformed the sexier growth stocks which are increasing earnings but typically trade at high P/Es. The chart below shows the underperformance of value relative to growth stocks (using two ETFs), but at the bottom of the chart we see a pretty dramatic spike up. If you were swing trading growth stocks this past week, that spike may have stopped you out. Three of my positions, which were looking very strong, quickly fell to my trailing stop loss and I had to close them for a small profit after being up a much larger amount.

value versus growth stock performance sept 12
It’s something to keep in mind if you are trading those high momentum names. If this transition to value continues, those growth stocks will continue to get hit lower.

As always, look for stocks that are holding up well into any selling on the indexes and that move up more than the indexes when the indexes move up. The stocks we trade change, the strategy doesn’t.

Should We Be Swing Trading Right Now?

Yes. The price action is bullish. Always trade selectively, but take high-quality trades as they come. I will be putting capital into quality opportunities as I see them.

By Cory Mitchell, CMT

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