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Where to Be Looking For Swing Trades Now

The S&P 500 remains mired in a range, yet to break higher but still holding an overall bullish tone. In the short-term, the index, and most stocks, could move either way but the eventual breakout direction is likely to be higher (based on evidence discussed below).

3028 is the July high, although that will likely be eclipsed if the market can pop above the 3022 resistance from September, which is just below where the market has stalled in October (as of Oct. 23).

On the downside, 2855 is the October swing low, and also the bottom of a rising trend channel that started back in June. The price could fall to 2822 and still be in a range though.

S&P 500 analysis oct 23

As discussed in prior analysis, there are several reasons to remain bullish. These include the rising trend channel, new highs in the NYSE Advance-Decline line, having already had a major correction in the last year, and “upside” day strength pointing to a 13% (now about 11%, because we have moved up since the signal) rise over the next year.

We can also add in that November is historically a strong month. Over the last 19 years, it has risen 74% of the time and gained 1.1% on average. December is up 68% of the time for an average gain of 0.4%.

With all this, there is nothing to say the market can’t drift for a while. But some stocks are still performing well, or could start to perform very well soon, and that is where to focus swing trading efforts.

Where to Find Swing Trades

Breaking the market down by sectors provides clues as to where to focus swing trading efforts. You can always just scan for stocks that meet your strategy criteria, but results tend to be better when an entire sector (or industry) is moving favorably, and not just one stock.

Here are charts of major sector ETFs. They provide a way to quickly see how the various sectors are moving overall. I would encourage you to familiarize yourself with their ticker symbols and ideally create a list of them somewhere. I have saved this list on Finviz, so I can quickly pull it up anytime.

sector charts oct 23

Let’s start at the top left with GDX (gold stocks). There was a big move higher in the summer and now it is in a corrective phase. Trends move in an impulse-correction-impulse pattern. Therefore, if the price starts moving out of that corrective channel the assumption would be for another move to the upside. Therefore, this is one sector I am closely watching right now. Not taking trades yet, but I will start looking at the names that have held up the best during this decline. If they hold up well during a decline, they are likely to surge when conditions are favorable (sector starts moving up again.

The following chart shows mining stocks ranked by their proximity to their 52-week high. Basically, this shows mining stocks that continued to move higher or that have stayed near 52-week highs even while the sector as a whole dropped. These stocks are showing relative strength.

mining stocks ranking oct 23

These are stocks making new highs or holding near highs, which means they are much stronger than the average stock in the sector as represented by GDX. Watch those stocks for breakouts to the upside.

RWR represents REITs, or real-estate investment trusts. The sector has broken out to new highs, so this is also a place to look for swing trades.

Financial stocks (XLF) have been strong. Watch for continued strength if you see the strong stocks in that sector break out to new highs again.

XLK (technology) and consumer staples (XLY) are hovering near their former highs. Despite the sell-off in some big-name tech companies, you can use the same approach as above to look for stocks that are near 52-week highs. These are the ones that have held up the best and could lead the next charge higher.

XLU (utilities) is also a sector that has been performing well. The sector is in an uptrend.

Bringing it Together

I am definitely watching the mining sector right now. There was a lot of strength during the summer and there is a well-defined corrective channel underway right now. The sector may not go higher, but the general pattern of trends suggests it will. Therefore, I want to be getting into strong mining names ahead of that surge. Now that the correction is potentially nearing completion I am watching for stocks that breakout of consolidations to new highs.

REITs and Utilities are already moving up, so these are sectors where you may still find the odd trade right now, but more than likely most of the strong stocks have already popped.

If a strong stock has already broken out, don’t chase it. Wait for valid trade setups based on your strategy. If the sector moves (or is moving) higher, there will likely be many opportunities in various stocks, so there is no need to fear missing out.

Technology, Staples, and Financials are all consolidating (financials are in a very small consolidation after a strong rally). So this is the time to start compiling a list of the strongest stocks in these sectors and watching for upside breakouts. You may notice that the strongest stocks in these sectors have already broken out. Once again, that is okay, just look for trades that match your strategy.

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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