Swing Trading a Choppy Summer Market

 

Summer and other holiday periods tend to be more tricky to trade.  A lot of trading influencers out there are mentioning this with some recent frustration.  However, there are a lot of great opportunities they are overlooking.

 

In this blog post, we talk about some great tips you can use based on over 15 years of day trading and swing trading.

 

The Key to Choppy Markets and Summer Trading

 

The key to summer and holiday trading is to look for a truly exceptional stock, catalyst and bullish consolidation pattern.  In other words, one of the keys is to wait for a real A+ swing trading setup.

 

These come up maybe once or twice a week if we are lucky.

 

Many wonder what we mean by “A+” and want a detailed explanation with an example.  Well, here it is.

 

A good example of an A+ setup was PLTR last week right after earnings.

 

Growth is one of the key factors we look for in a great swing trading opportunity.  Well, PLTR does not just have strong growth….

 

It has MASSIVE growth in an area of the market that had been catching a bid recently.  Software.

 

25% growth in sales and earnings is very good.  But 90% sales growth with stronger earnings growth is A+ growth.  Sales for PLTR were also accelerating which is another great sign after consistent growth for many years.

 

A large gap after a great earnings report is also a good sign.  But PLTR was not just gapping higher after hours.  It was gapping about 14% higher after hours and holding a narrow consolidation on a five minute chart near the highs after the conference call.  Another key sign that prompted us to notify customers.

 

Much Better Than Expected News and Improved Outlook is Another Key Ingredient

 

The CEO also said they will have exceptional growth for at least the next 18 months.  Most investors want to hold a stock for at least a year.

 

They raised sales guidance by about 7% for 2026.  They beat on the top and bottom line by a wide margin.  Money was searching for good software plays at the time.

 

All of these factors combined is like striking a match on a hot summer day and throwing it on dry wood.  The fire could burn strongly and it sure did in this case.

 

PLTR reached our entry trigger price, a break of a key resistance level the next morning, and then soared 25% from there while holding a 1% stop below the technical entry point.  Breaking the key resistance level is very important to us to confirm price direction after the report.

 

Large funds will be all over this stock after the news.  They have so much buying power that they will have to buy for days, weeks or months after the report.  They do not put in a market order in for 100 million shares all at once.

 

They have to buy over time.  This is why investable stocks are generally the better ones to trade.  Low priced stocks are often bought today and sold soon after by the pumpers.  Low priced stocks generally have a long term downtrend on a 5 year chart which can easily be seen with a quick glance.

 

Meanwhile, PLTR had created value over the past five years rather than destroying it.  The 5 or 10 year chart makes this fact pretty easy to spot and the first chart to look at.

 

Big Winners Mixed in With Small Losses

 

Overall summer tends to be more hit or miss when the Nasdaq is locked in a sideways range or downtrend.  For instance, TWLO met the requirements in the rapid account growth course on Friday and hit the 3.5% stop right away.

 

Meanwhile, TXG met the rules and soared nearly 20% within a couple days while holding a 2.5% stop.  With a range bound Nasdaq, the last week of July and first week or so of August definitely tends to be more hit or miss.  Especially when leading stocks are falling 40% or more from the highs.

 

This is true of other holiday periods as well.  For instance, the first couple weeks of December tend to be sketchy when the Nasdaq is range bound versus trending as many people are doing holiday prep.  The last couple weeks of February tends to be a little weak as well.

 

Fortunately, the last couple weeks of August tend to be strong historically, surprisingly enough, as the big funds get ready and positioned ahead of time for the best time of year for stocks.  With such strong earnings growth right now, we should see some great earnings flags develop in the weeks ahead.  We have a couple featured this week.

 

Lets hope the Nasdaq can start to confirm this recent strong bounce in the days ahead.  This would set up a better swing trading environment as many of the best trading stocks are in tech.

 

Massive Earnings Growth

 
A good reason for the S&P 500 breakout last week and the rebound in the Nasdaq is the strength of earnings growth reported during Q2 earnings season.  Despite being up double digits for the year, the S&P 500 is significantly cheaper relative to earnings now than it was at the beginning of the year.  42% earnings growth for the S&P 500 will bring down multiples quickly.

 

According to Yardeni Research, the forward P/E ratio of the S&P 500 is now 19.9.  It was close to 22 at the beginning of the year.

 

As we have been saying in the service and prior article, the forward P/E ratio of the market tends to make higher lows and higher highs during a bull market.  If this trend continues, we could see the S&P 500 go another 15% to 20% higher within months.  The prior swing high was around 23 times forward earnings.

 

Even if we exclude many of the investment gains from hyper scalers from their SpaceX and Anthropic investments, earnings growth is still coming in nearly 30% for the S&P 500.  So strong earnings are driving the indices higher which is a good sign.
 

 

How We Swing Trading Earnings Reports

 

Our Top Strategies for Q2 Earnings Season 

 

Last Chance for the Annual Quarterly Sale