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S&P 500 Outlook and Stocks to Watch

The S&P 500 is moving within a large range following the sharp decline in early August. The breakout of that range is likely to determine where we head over the next few months. As discussed in the August 5 article, minor stock market corrections are typically between 7% and 11.5%. This is the scenario that could develop if the S&P 500 drops below the recent range low at 2822.1. The pink box shows where the 7% to 11.5% pullback area is.

Another scenario is a breakout higher. A close above 2943.3 would help signal a breakout to the upside and another advance. This would essentially make the price action since May a rising channel, with the price expected to move toward the upper end of the channel at 3100 through September and October. If the price breaks lower, these levels are invalidated.

Overall the S&P 500 remains in an uptrend, unless the price drops below the last swing low (June 3). That means I continue to look for very strong stocks which are holding up well despite the pullback in the indexes. I am continuing to buy stocks selectively, as even some of the strong stocks can give way when the indexes are under downward pressure.

S&P500 analysis for august 22 2019

On July 18 I outlined two stocks I was interested in. LPLA and DXCM.

LPLA broke out to the upside but volume didn’t move up. This was a warning sign, and with earnings coming out only a few days after the breakout this one could have been avoided. It fell following earnings. Either way, the tight stop loss quickly got us out of the position.

DXCM, on the other hand, oscillated for a while but had a nice breakout on solid volume recently. It is continuing to move well to the upside.

For the last few months, the above results are typical. Quite a few of the strong stocks fail, yet there are a still some really strong stocks out there that just keep pushing higher. Keep risk limited on the downside and let the ones that do run, run. I do this by using a trailing stop loss (individually calibrated to each stock) if I think the stock has the potential for a big move.

By “strong stocks” I mean stocks that are relatively strong. They are holding up better than the indexes, pushing higher while the index falls, for example.

Swing Trading Stocks to Watch

Dexcom (DXCM) is the only US stock I have a swing trading position in currently. Here’s the original chart from July 18.

There are only a few other stocks on my watch list, because, as mentioned, with the S&P 500 in a pullback there is a greater chance of failures when the stock prices try to pop higher. That said, the market is still in an overall uptrend, so I want to have some stocks on the radar and ready to pounce on if they start breaking higher (and especially if the S&P 500 starts moving up too).

Transunion (TRU)

Strong uptrend. The stock is consolidating just above a former high. The current consolidation is fairly large, resulting in about a 7% stop loss. I would prefer to see this tighten up, or for a smaller consolidation to form near $85. If the upside breakout occurs, the stop loss can then be placed below the smaller consolidation, resulting in less risk and a better reward:risk. May utilize a trailing stop loss on this one.transunion potential swing trade setup


A high priced-stock, but that shouldn’t affect decision making. A stock can be $4 or $4000. The stop loss creates the position size, and the position size will be smaller when a stock costs more.

This one is already running, after breaking out on August 21, the stock is moving to the upside again on Aug. 22. Could wait for a possible pullback to around $3600, or watch for another consolidation and breakout. Another consolidation could likely develop around the 2018 high or just above it (similar to TRU chart). I like the trailing stop loss on this one too, although I have added a potential profit target area for those looking at the possible reward:risk.

NVR potential swing trade setup

Final Word

The S&P 500 remains in an uptrend, so I am still looking for strong stocks that have held up well during the pullback in the indexes. That said, I don’t have a lot of positions as there are limited quality setups at this time. There are still a few stocks worth watching though. If the S&P 500 starts to rise, we will start seeing a lot more trading opportunities on the long side.

Be very selective right now. Even a lot of strong stocks are breaking out, but then quickly failing. It’s not a time to be afraid of going long, but it is a time to be cautious and highly selective. There is a chance of a deeper correction in the indexes which will drag most stocks with it. But there is also the chance of a move higher, setting up potentially big moves in the stocks that have stayed strong in recent weeks.

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