The stock market remains in an uptrend. With that being the case, I continue to buy valid trade setups in stocks as I seem them.
Here are some brief summary points on the current condition of the stock market indexes. Then, we’ll get to the stock watchlists.
- As of the close on August 5, 69% of NYSE stocks are above their 50-day moving average. This indicates favorable conditions of swing trading on the long side. When that drops below 50%, expect your win-rate (how many trades you win out of total trades, as a percent) on longs to decline since fewer stocks are in short-term uptrends.
- The Advance-Decline line remains near highs, while the S&P 500 remains below its February high. This positive divergence is nearly always a positive sign for the stock market.
- Volatility, as measured by daily percentage moves, continues to contract. This is more typical of bull market behavior. That, of course, could change at any time. A return to big percentage moves, especially greater than 2% to the downside in a day, would be a warning sign.
- We are seeing less extreme volume on up and down days—this is where 90%+ of all volume is up or down. We have not pushed above that level (on the upside or downside) since late June. This balanced buying and selling is more indicative of a healthy bull market. Extremes tend to occur more near price bottoms or tops.
- And finally, and simply, the S&P 500 and Russell 2000 continue to advance toward their pre-COVID highs. The Nasdaq 100 is well its pre-COVID levels and is attempting to push higher out of a three-week range.
US and Canadian Stock Watchlists
I continue to watch for cup-and-handle and continuation patterns.
To learn more about these patterns, check out both of the following articles:
- The Cup and Handle Swing Trading Strategy – Explosive, Consistent Price Moves
- How to Scan for Cup and Handle and Continuation Patterns
Lots of gold stocks continue to show up on the list, especially on the Canadian side, as there is currently a strong uptrend in gold.
These are the raw lists. These have not been filtered for Reward:Risk, proper volume structure, upcoming earnings, and the handles may not be fully formed. These stocks are added to my list, and then I narrow it down to a few that set up correctly and actually break out. All the details to watch for are discussed in the cup and handle article above. Essentially, I am waiting for these to form the correct pattern.
I don’t include stocks that have already broken out unless they are still close to the entry point.
Stocks with a * beside them are getting to close having fully formed handles.
In swing trading, position sizing is key. This article discusses how much stock to buy based on the risk of the trade, your risk tolerance, and the amount of capital you have.
These are by no means exhaustive lists. There are loads of stocks right now with these patterns. If you see others, throw them in the comments.
US Stocks to Watch
From ChartMill Sqeeze Play Ideas
SPLK* (broke today)
LULU* (broke today)
URI* (broke today)
Canadian Stocks to Watch
From ChartMill Sqeeze Play Ideas
Recent Hits and Misses
Sometimes a miss is a trade you didn’t take. To me, a winner not taken hurts more than a loss. I typically only lose about 1% to 2% of my capital on a loser, but missing out on a winner means I lost out on adding 3% to 10% to capital, since my trades all have a 3:1 reward:risk or better (at least right now, in these favorable conditions).
On the Canadian side, Pyrogensis (PYR.V) has been on a tear. It is sometimes hard to convince ourselves that a stock that has gone up so much could have another rally left in it. This one did.
In July it formed a very nice continuation handle (and another in June). The price contracted, volume dissipated, and price formed a consolidation. The breakout to the upside was easily traded as the price touched the level multiple times. A 30%+ profit was missed, more if you include missing 2 trades!
On the winning side, GSX took off and has nearly reached the profit target within 4 trading sessions for a 30% gain.
The price contracted, having multiple swings over a smaller range. This created the handle. The price then consolidated briefly, and a long trade was taken on the upside breakout of the consolidation. The stop loss was less than 7% away, so the 30% target (in this case) provided a close to 4.5:1 reward to risk.
Cory Mitchell, CMT
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, even more than deposited if using leverage.