These are stocks I’ll be monitoring over the next week to form valid patterns and potentially trigger a trade. I am currently scanning for and trading continuation contraction patterns.
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Before getting to the potential swing trades for this week, let’s look at the overall health of the market.
Market Health Outlook for Swing Trading
The S&P 500 dropped 2.57% on Jan. 27. That’s a problem, especially when combined with a few other issues with the market health indicators…
The number of stocks above their 50-day moving average is dropping and is now below the 50% level. Only 43.96% of S&P 500 stocks are above their 50-day moving average. Yellow flag.
The ADL (advance-decline line) had already made a lower swing low ahead of the S&P 500 in early trading on Jan. 27. That’s another yellow flag.
My main issue is the lack of quality trade setups, especially on the US side. Last week there was a big list of possible trades, and I didn’t end up taking a single one from that watchlist. Nothing had all the characteristics that I look for, or it didn’t break out to the upside and fell away instead.
Therefore, this style of trading already had me mostly sitting in cash and waiting for better opportunities. If the indexes and health indicators remain weak I may not take any trades.
Charts provided by TradingView.
Overall the market is still in an uptrend but we do have issues/flags. In this situation, I don’t exit existing trades. They have targets and stop losses and the price will eventually hit one of those. With multiple flags present, I severely limit the amount of capital I put into new trades. I may still take one or two very high-quality trades, but I can only deploy a small portion of my account capital until conditions improve again. That could be a day if we rally tomorrow or it could be months if we keep selling off.
US Swing Trading Watchlist
232 stocks on the scan list, reduced to those below. I lowered the Price Vs. 52-Week high parameter slightly since most stocks will have pulled back in the last week. But increased the 1-Year Return Vs. Sector to thin it out a bit (it only eliminated a few).
RVP – Contracting. This a Cup and Handle pattern.
NK – Contracting. Also a cup and handle.
These patterns both still need to consolidate with the correct volume structure in order to be valid.
Still Need to Move Back Up and Consolidate
Below are patterns that are starting to form but still have a long way to go. These are often the types of setups people ask me about. These setups are way too early. That doesn’t mean they can’t go higher, but they don’t fit the Contraction strategy just yet. Keep an eye on them to possibly set up over the next couple weeks.
TUSK – This was setting up around Jan. 20, but then broke lower so it needs to move back up again.
PDD – Contracting for less than a month at this point.
Canadian Swing Trading Watchlist
127 stocks on the scan list, reduced to those below.
AHC.TO – Contracting.
KNT.TO – Contracting. Broke out. Still in the vicinity. Just under a few of the scan parameters, but strong overall.
AJX.TO – Contracting. Needs to turn higher soon in order for it to even possibly form a valid pattern.
WELL.TO – Contracting. Needs to turn higher soon in order for it to even possibly form a valid pattern.
IPA.TO – Contracting. That first bounce up was a bit weaker than I like to see relative to the late December drop.
PLTH.CN – Contracting. Needs to turn higher soon in order for it to even possibly form a valid pattern.
MTRX.V – Contracting. It falls outside scan parameters but super strong long-term. Needs to turn higher soon in order for it to even possibly form a valid pattern.
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.