I was a little blow away by how many stocks are holding well during this pullback in the major indexes. The Nasdaq 100 is down about 12% from the high, and the S&P 500 is down about 7.5%. Those are pretty typical pullbacks (so far). Most pullbacks of this size resume to the upside as opposed to further downside.
My scanners help me determine market health. They have basic uptrend and performance metrics in them, so when the list has few stocks on it, things are not good. But this week there were quite a few, and glancing through I wrote down about 40 stocks that required a closer look (out of about 150 on the full scan list).
The scanning process is important, and so is figuring out which stocks to focus in on. So for those of you who are interested in how a list of stocks gets narrowed down, I have included my “rough list” below. This is the list that gets a second look. I jot these stocks down as I quickly go through my scan list.
I then narrow this list down to a handful of stocks. Basically, I come up with a list of the stocks I think have the best setups (for the strategies I trade), and that are closest to forming valid patterns and breaking out.
If I skipped a stock it doesn’t mean I don’t think it can’t go higher, or that it is going to drop. It means it didn’t quite meet my strategy parameters for a cup and handle or continuation pattern at this time. OR, it may still be forming the pattern, but hasn’t quite fully formed the handle and/or consolidation yet. In this latter case, maybe it will make it to the watchlist next week.
For the Rough List below, if I didn’t include it on the Final List I put a description why. Stocks that made it to the Final List are bolded.
The Final List is the stocks that I would consider putting out orders in if they breakout higher without any issues with the patterns (many have issues currently).
Remember, with swing trading, we have limited bullets/positions. It isn’t just about finding a trade that could work out. It is about looking at the trade setups we have and then attempting to pick the best ones from current candidates AND what we know good setups look like. If the best candidate on our list looks like shit compared to the examples of the patterns provided in the articles, then it probably isn’t a good idea to trade it.
Rough List Stock Watchlist
Ideally, pull up these stocks so you can see why they aren’t (or are) valid patterns based on the parameters of the strategy.
LCA – strong, but no contraction. Consolidations wide and choppy. If it starts tightening up, I may get interested.
NG – looks good, but no contraction or consolidation yet.
BGNE – pretty good setup. Contraction and a brief consolidation, but I missed the breakout. That’s ok. The market has been dropping and I was golfing.
CLLS – Doesn’t quite fit the pattern. It’s looking pretty good though with the break above that brief consolidation today.
CLDX – I like it. Await consolidation or breakout. Rounded bottom–not discussed on TradThatSwing yet, had an entry around 12.60.
DOYU – a bit more contraction and this one has potential, but not yet.
MN – Possibility here. Needs a consolidation.
WRN – Consolidations right above contractions are fine to trade, but it is a bit late. There were earlier entries that are nearing profit targets.
FSM – Watch for a double consolidation pattern, but not there yet.
MGNX – at top of the long-term downtrend channel. Breakout already happened.
SURF – Against a prior downtrend. Price action is wedging up, making a breakout point unclear. No levels from the past in close proximity which could trigger a big move if broken (like a prior high).
VUZI – Pretty ragged price action.
NIO – The breakout occurred on August 25 from a nice pattern. It’s gone and needs to setup again.
FATE – Potential if it consolidates here, but not ideal contraction.
PTGX – Needs a contraction and consolidation.
UTZ – If it tightens up, I am interested because of the momentum. But it needs to contract then consolidate.
NVTA – More of a small rising range recently.
EGAN – Breakout was Aug. 27. Need to form another another contraction.
AQST – I like it, but it needs to form more of a handle and consolidation.
GH – Needs to contract/form a handle.
VRT – Nice breakout from a contraction recently. I don’t chase.
PSNL -Wide and loose contraction compared to prior ones. No consolidaiton yet.
FVRR – Needs to contract more. This formation is a bit loose still.
PODD – A low volume consolidation around here, with an upside breakout, is tradable. The chart is messy recently. Without the consolidation right near highs, this could fail and just chop around.
AVTR – Yup. Wait for a volume to drop off followed by upside breakout.
MED – It hasn’t contrcted. I’ll give it some more time.
SHYF – Watch for a consolidation around 21.
ALB – Contract please.
MAG – Could also watch for a double consolidation pattern since we are coming out of a correction (like at end of June and early July).
HZNP – Not really there yet.
SA – Again, need volume to trail off as the price contracts.
DAVA – Didn’t really contract, moving up now.
CMBM – Breakout on Sept. 14. I believe I was on the golf course.
SAM – Had a couple of swings and flushed out the prior low, that’s positive, but I still want to see it contract. Right now, it doesn’t fit the patterns. Possible double consolidation if the price moves up a bit and consolidates again.
LEN – This a pretty small contraction. It may be unreliable. I’d prefer to see one more price swing. Volume also high on current consolidation.
SILV – It’s ragged. Not fully formed yet.
CC – It’s gotta tighten up a bit more. Especially against the backdrop of a long-term downtrend.
HCM – Good contraction. But against prior downtrend-not ideal.
Final Stock Watchlist
So quite a few stocks made it to the final list. At most I typically trade 5 to 7 stocks at a time, and I am not going to go back to fully invested in one day. So maybe out of this list I will pick one or two to put out orders in. Maybe I get filled, maybe I don’t.
Also, keep in mind that some of these stocks still have some setting up to do before they are tradable. That could happen this week, or it may not happen.
CLDX – it roughly fits the parameters, but too choppy for me to consider a trade. I want nice tight patterns.
MN – against longer-term downtrend, but has cleared some resitance levels.
PODD – it roughly fits the parameters, but too choppy for me to consider a trade. I want nice tight patterns.
AVTR – a bit ragged right now. Need a cleaner consoldiation and entry point.
SHYF – needs more time
HCM – choppy last few years.
Based on my additional comments, you can see that there is nothing that I am really excited about right now.
If there is a list of trades I like, I then pull up the charts and determine where my entry point and stop loss will be. I will then determine my profit target. Looking at the risk/reward will likely eliminate a few candidates right away.
Over the next week, I will also glance through the Rough List again and see if any of the stocks on that list have made progress in forming better patterns.
The market is under downward pressure. There is no urgency to jump into trades. Despite there being a few candidates that MAY set up trades, I’ll likely remain on the sidelines for the next few days. From this list, I didn’t find anything super compelling.
Writing all this out took quite a bit of time, so I didn’t include ChartMill Squeeze plays in the above list, nor Canadian stocks, nor trend channel setups. I’ll try to do a list of those soon as well.
This article was more of an educational piece to show how the list gets processed down. Once you are studied the correct look of the patterns, going through a scan list and getting it down to the final list and possibly some trades typically takes less than 30 minutes a couple of times a week. Quite often all that work produces nothing! That’s a good sign you are on the right track. Be ruthless with your stock picking. Just like you don’t want shitty friends, don’t befriend shitty trade setups.
Once again, a stock being on the list doesn’t mean it needs to bought, and if a stock isn’t on the list that doesn’t mean it is bad. This is purely about finding stocks that meet the pattern parameters.
The patterns are what provide me with my edge. Without them, I have no idea what a stock is going to do, and I don’t care. I don’t control the market, but I do control what I trade within it. I know I can have a good win-rate and reward:risk with these patterns. With a random unknown pattern, I have no idea what my long-term payoff is.
If I continually see big moves that I miss then I try to develop a strategy for capturing those big moves, but we can’t catch everything, and we don’t need to.
Cory Mitchell, CMT
Personal trader coaching is available with limited space. See the Trader Coaching page for details.
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.