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S&P 500 Outlook and Stocks to Watch

The S&P 500 is making new highs ahead of the Thanksgiving holiday in the US. Historically, December has a slight edge to the upside, with an average gain of 0.5% over the last 19 years. The month has moved higher 12 out of those 19 years. More recently, December hasn’t been as strong. Over the last 5 years, the index has lost ground in December.

Whether December is strong or weak, the overall uptrend remains strongly intact.

There is potential for a pullback of 3 to 5% from current levels, which would bring the price back to the prior resistance level near 3030.

The S&P 500 is at the top of a rising channel, and broke above it today. The price doesn’t need to pullback from the top of the channel, the price could continue to accelerate to the upside, or the price could rise along the upper trendline higher. If the price does pullback, 3030 (prior resistance) or the bottom of the trend channel near 2950 (currently, will rise over time) are potential targets, with the former being more likely than the latter.

SPX analysis Nov 27

In either case, pullbacks remain buying opportunities as there is little evidence of an impending crash. Advance-decline lines for the NYSE, mid-caps, and small caps have all carved out new highs recently. Small cap performance has been improving. This shows increased risk appetite, which is favorable during a bull market advance. The following chart shows all these indicators, with the main chart showing how small caps (IWM) have performed relative to large caps (SPY). The indicators below are advance-decline lines for the NYSE, mid-caps, and small caps.

IWM versus spy with advance decline lines

Sectors to Watch

These are sectors to watch for swing trades in, as they are currently strong or could be strong again shortly.

Biotech, as represented by the SPDR Biotech ETF (XBI), has been launching higher the last couple weeks. This is coupled with the healthcare sector (XLV) as a whole moving very well.

Materials (XLB) recently broke out and is consolidating. Watch for a breakout in this sector again. Leading stocks in the group will already be moving to the upside. Industrials (XLI) are in the same boat.

Financials (XLF) continue to push higher.

Consumer Staples (XLP) is breaking out again this week, and so is the Consumer Discretionary space (XLY) although the latter has to clear a few more hurdles before breaking above the 52-week highs.

As with the broader indexes (SPY and DIA) technology stocks (XLK) continue to push higher as well.

sector charts nov 27

There are lots of pockets of opportunity out there right now.

GDX represents gold miners. This sector was discussed in S&P 500 Remains Strong But Gold and Silver Deserve Center Stage. Gold and the miners are still in a corrective phase. Watch this sector for a breakout, as gold stocks can have huge moves. Trading the ETF is one option, while another option is to trade gold miners that are already performing very well. The ones that are performing well now, while gold is moving lower, are likely to lead going forward as well. You can always update the following lists to see which stocks are performing well recently.

First, let’s look at the gold stocks that are closest to their 52-weeks highs. These are the current leaders in the mining sector (.TO signifies a Canadian listed stock).

gold stock 52-week rank nov 27
As can be seen by the top stock on the list, ASR.TO is breaking into new high territory currently, even while GDX and gold remain well below their respective highs.

Another way to scan through the industry group is to look for stocks that have been strongest over the last one, two or three months. The following list pulls stocks from the gold sector, but the results are listed by 3-month returns, from highest to lowest. The ones at the top of the list have shown the biggest upside moves recently.

3-month returns for gold stocks nov 27

Just because a stock is near the top of the list doesn’t mean that stock should automatically be traded. It is up to the trader to define a good entry, stop loss point, and profit target. These all help assure that the trade has good reward-to-risk potential before the trade even happens. Also, some of the stocks on the list are over-the-counter (OTC) market securities. I only trade stocks listed on major exchanges.

Here is the scanner criteria, using StockRover. You can add or subtract filters based on your own trading methods.

basic gold filter critiera

These same scanning and sorting methods can be used in any sector or industry, or to simply find strong stocks from all exchanges, or from a specific list such as the S&P 500.

By Cory Mitchell, CMT, on Twitter @corymitc and in my free swing trading Facebook group.

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, or even more than you deposited if using leverage.

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