The S&P 500, Nasdaq 100, and Russell 2000 futures/indexes remain in uptrends, with the Russell looking a little flatter.
There is certainly the possibility of a pullback, but that is why we use stop losses on our swing tradings. I want to take advantage of strong uptrends when they are there. With several swing trades out a time, the worst that happens is I get stopped out of a few trades if the market tanks.
We have started to see more selling recently; another 5% downside is reasonable. But I can’t know if or when that will happen, so I continue to take valid trade setups as I see them.
That said, I am also using profit targets and taking profits regularly, which typically keeps some of my account in cash. As targets (or stop losses) get hit and fewer trades set up, eventually the account moves to 100% cash.
Right now there are lots of setups, and stocks are still hitting my profit targets more so than my stop losses.
Swing Trading Stock Watchlists
The number of watchlists stocks are still plentiful. Gold continued its uptrend today, and the gold stocks followed. Gold stocks have taken over recent watchlists, especially on the Canadian side.
The watchlists are a major part of my analysis. A lot of trade setups tells me the market is healthy. Right now I am still focused on cup and handle patterns or stocks that are very strong and have formed nice handles (“continuation” patterns) above their original cup and handle breakout levels. I want to see the upside breakout from those handles.
If there are very few setups, that means the market is less healthy, and I naturally end up in less trades. That isn’t the case right now.
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.
Most of the stocks on the watchlist are now continuation patterns. This means they already busted out of the cup and handle and are running to the upside. As new handles form, these could provide trading opportunities…but only in strong stocks, which these are.
US Stock List
LVGO (continuation….but recent consolidation is loose. Needs to tighten up.)
FVRR (continuation…needs to tighten)
RH (continuation…discussed this one as a Cup and Handle back on July 13)
Recent Hits and Misses
Trading is about winning and losing. In this section, I highlight a recent win and loss. Tracking the charts of your winners and losers may help you notice certain characteristics that your losers share, or that your winners share with each other.
Floor & Decor Holdings (FND) was on the July 14 and July 20 watchlists. It had a well-formed handle with contracting volatility. Volume also dropped throughout the handle.
There were a couple of potential entries. The first had a risk of about 5.5%. 3:1 reward:risk provided a target of 16.5%. That target likely got hit today, depending on the exact trade levels chosen.
A smaller consolidation occurred right after that. A 3:1 or 4:1 target would be getting hit today as well.
Assembly Biosciences (ASMB) was a stock I featured last week in this section because it was acting well…but that quickly soured. The stock reached my stop loss on Friday and I exited. I hadn’t moved my stop loss up at all because the stock had broken out on high volume on July 20. If it acts right I give it room to move. Losing trades can happen even if the stock acts right.
This was certainly not the most pretty pattern, and the stock has a history of being pretty choppy.
Take the loss and find another trade.
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.