Home > Stock Market Firmly In Bullish Territory, Here’s Where to Focus Swing Trading Efforts

Stock Market Firmly In Bullish Territory, Here’s Where to Focus Swing Trading Efforts

November 2, 2019 By Cory Mitchell

The US stock market is firmly in bullish territory with a breakout to new highs this past week. There are a host of highly reliable statistics that point to further upside over the next 6 months to a year.

Here are the main bullet points.

  • Based on very bullish “upside days” during the consolidation and break higher in August and early September, that pattern typically produces an average 13% rise over the following year. From current levels, that still leaves almost 9% to go.
  • The NYSE advance-decline line has been continually hitting new highs, even when S&P 500 wasn’t. Back in September, this indicator signaled that it was highly likely the S&P 500 would reach new highs like it did last week.
  • The small-and mid-cap advance-decline lines have also moved into new high territory. That is bullish for the market as a whole.
  • November is historically one of the strongest months of the year, with the S&P 500 typically tacking on 1.5%. Add 0.5% in December. January and February are usually pretty flat, and then March and April are the strongest months of the year, with average gains of 1.6% and 1.8% over the last 20 years.

sp 500 chart with advance decline lines nov 1

The index has also just made a massive breakout. While there is always a possibility it could fail, and the price drops back below resistance, a breakout from a very large consolidation (actually an ascending triangle pattern) deserved to be heeded. It remains an attractive time to swing trade, but as always, only in the sectors and stocks that are acting well.

Sectors To Focus on For Swing Trades

Over the last several weeks I have noticed that more of my swing trades are coming stocks that were beaten down or in a significant correction, but that have been rallying strongly over the last few months. A lot of the big-name growth stocks have fallen off their highs and new strength leaders are emerging. This happens continually in the market. You may trade a ROKU or SHOPIFY for months on ends as it chugs higher, and then boom, those opportunities are gone as the stock sinks into a correction.

So let’s look at the some of the sectors where you are likely to find swing trades right now, or start to see a lot fairly soon. Why does looking at sectors matter? When a whole sector is moving it helps to reinforce individual stock moves (within that sector). If the whole sector is going up, it adds fuel to the fire. It also makes it easier to find trades, since you can filter for stocks in certain sectors that are moving well.

Based on the below, there are a lot of opportunities right now.

Gold and Silver

Gold and silver can’t be ignored right now. There was an aggressive move higher in gold, silver, and the associated stocks in May through August. Since then the stocks and metals have been in a corrective phase. We know that trends typically unfold in a wave up, correction, wave up fashion, so the likely breakout direction is higher. The gold miners (GDX) are on the verge of a breakout from the correction and the silver miners (SIL) arguably already have broken out. Any further upside in these ETFs would help signal the wave higher in this industry.

Look for stocks that have held up the strongest during the recent decline, and that are breaking above recent consolidations.

GDX and SIL ready to move out of corrections

Technology

The ETF XLK is in new high territory, breaking out of an ascending triangle. Technology continues to be a place to look for swing trades.

XLK breaking out of ascending triangle to upside

Biotech

Biotech, as represented by XBI, has pushed out of its descending trend channel. This channel also followed a sharp rise in early 2019. The ETF could well head back to $100, and that means there will be a lot of stocks within this sector that really explode higher.

I don’t trade names with lots of price gaps on their charts. This is because biotech stocks are prone to gaps when information is released about their products.

XBI breaking out of descending channel

Materials

XLB ETF, representing materials, such as chemicals, metals, and paper products, is near the top of a recent range. Watch for a breakout to the upside from the recent consolidation. The strong names in the sector have already broken out.

XLB nearing breakout level

Industrials

XLI is the Industrial ETF—holding stocks in aerospace, autos, homebuilders, logistics—and it just broke out. Most of the strongest names are running higher already, but as the next wave higher unfolds there will be opportunities in this sector as well.

XLI breaking higher

Financials

Financials have already broken out. This means the strongest names will have already shot higher. But with a strong breakout like this, there could more upside to come, so watch the sector for opportunities as they arise.

The Others

Consumer staples, consumer discretionary, REITs, healthcare, and utilities all look in decent shape too. But given that there are so many other great looking sectors, I would tend to put more focus on the ones listed above.

Bringing It Together

The S&P 500 and Nasdaq are in full-on bullish mode. A breakout to the upside has signaled the next wave to the upside.

There are a lot of sectors looking good right now. That means a lot of opportunities.

The metals, and associated stocks, are a good place to look right now. I would also focus on technology, biotech, and industrials. Materials are on the verge of breaking out, so now is the time to look for the stocks that are leaders (already breaking out) in that sector.

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.