Swing Trading Weekly Charts & Hot Semis (2019)
The market is heating up. We just saw 4 huge moves from stocks in our alert service over the past week or so.
Those opportunities that meet all of our requirements when they reach the technical entry point are taking off.
This is not uncommon when the market is breaking into new highs more decisively.
A Better Looking Market Breakout
The S&P 500 and Nasdaq have reached new highs several times this year only to have market players reject those levels. Now we are seeing a more clean breakout into new highs after a more narrow consolidation. A good sign.
The banking index broke out of its 9 month range, pulled back to test the top of the now prior range, and just generated a strong candlestick pattern back to the upside. It looks ready to trend higher.
The transports are lagging a bit but the long-term moving averages are starting to curl upward as we retest the high of its range. The small cap Russell 2000 is testing the top of its range again and is out of correction territory.
We continue to see clean breakouts out of bullish consolidation patterns from gold stocks to semiconductors as long as we have the fresh catalyst.
The Fed confirmed that the economy, job market and outlook are still ok to good with another rate cut and signaling a pause. Meanwhile, the Fed balance sheet is now expanding and the rate cuts will have an affect in the not-too-distant future.
The job numbers and revisions were strong on Friday and the ISM manufacturing index was better than some feared. It will be interesting to see how the ISM services index comes in on Tuesday after a weaker number last month.
The market is liking companies that are managing margin pressures and are able to beat estimates and raise guidance. We are seeing a lot of love for those stocks to be sure.
Here are some examples in our latest published video:
One of the most exciting areas of the market recently has been the semiconductor space. We have seen 3 big moves from stocks after being featured in the alert service near an ideal technical entry point with a fresh catalyst.
LRCX was featured breaking out of a small cup shaped base just before it soared about 13% within 4 trading days after reaching our target entry point. IPHI surged 8% within a couple days.
QRVO just rocketed higher after being featured in the alert service in a strong weekly chart pattern on Thursday evening.
This is where the big money is being made this earnings season.
Weekly Chart Trading Strategy
Today I want to show you swing trading on weekly charts and the big consolidation patterns that can set up on stocks like QRVO.
QRVO had a 4+ year cup with handle base pattern that it soared out of on Friday. Yep. That is over 4 years it took to carve out the base pattern.
Here is how it looked on a weekly chart. The pattern is a little choppy (we would rather see a smoother rounding bottom pattern) but its a good consolidation pattern nonetheless. The very large cup patterns are generally more choppy.
The first thing we want to see in a potential trade candidate is a great long-term trend leading into the consolidation pattern. This proves that the business model and management team can pull off the results that lead to big moves in the stock price.
In the case of QRVO, we can see that it made an enormous move in 2014 before developing the cup with handle pattern. In fact, we see extreme bull flag patterns (the most bullish chart pattern) and other bullish chart patterns within the strong run.
The stronger the trend into the consolidation pattern, the better. We can also see that recently the stock is finding strong support at the 200 day moving average which corresponds pretty well to the 40 week moving average on the chart above.
Here is a daily chart over the past several months including the big breakout we called on Thursday evening
We can also see the 200 day moving average starting to curl upward. A move above the 200 day moving average and then finding support around that level is a good first step in looking for good swing trading opportunities on stocks where we have a bullish thesis.
We have seen over and over in our back-testing and own trading that stocks below the 200 day moving average, especially a declining 200 day, consistently have lower win rates when swing trading. Other studies show weak results from stocks below a declining 200 day moving average as well.
When swing trading we want to see high win rates while using a tight stop-loss. Sitting on a 20% or 30% loss through a volatile bottoming process (maybe) is not something we do when swing trading.
When to Use a Weekly Chart
Weekly charts are a great starting point when looking for good trading candidates. In our swing trading strategies, we also look for rapidly improving fundamentals and bullish chart patterns on a daily chart.
In this market, add a strong, fresh catalyst along with near-term price direction confirmation and its off to the races in many cases.
The semiconductor industry is a very cyclical one so the swings are often much larger. We have taken some nice profits on all these opportunities, stopped a little below the technical entry point in some cases and are looking for a good secondary entry point.
Another good catalyst like trade deal progress or a big upgrade with the secondary technical entry point could produce another big move on any of these 3 stocks.
If the market is starting another leg higher, any or all 3 of these stocks have the early hallmarks of being market leaders in the months ahead.
Of course, we will not be chasing these stocks on the way up but looking for a good technical entry point with another good catalyst. Perhaps a rebound off the 50 day or even 9 EMA with a strong candlestick pattern near there.
As the market starts to trend higher we are seeing a lot of big moves from our top technical setups on good stocks. Its a great time to prepare for the week ahead and what could be a very exciting second half to earnings season.
This week we have ROKU and TTD setting up bullish chart patterns ahead of their earnings reports. Its daring to buy these ahead of the report although ROKU has a Zacks #1 rank as I write this.
It can be tricky to predict an earnings surprise. Often, the smarter play is to wait until after the report and maybe we will get another big earnings eruptions play on one of these stocks.
Certainly other stocks will set up this high percentage, low risk trade after a big report this week like IPHI and QRVO did last week.
Third quarter earnings season is getting fun as we talked about last week – for those with a great trading plan. The next few weeks could get better.