When to Swing Trade Aggressively and When Not to

 

Starting a few days before the Jackson Hole speech, the price action out of good technical patterns was poor.

 

After the content of the speech was released, suddenly great technical patterns were generating stronger breakouts.  At least the ones that met our rules in the top strategy for rapid account growth.

 

Stocks that were in our strongest technical pattern and met the rules in the strategy pre-market, like TREE and BE, had very clean breakouts and easily reached the first profit target while holding a 1.5% stop below the entry trigger price.  Both stocks are still in play using the optimized exit strategy with BE already surging about 15% within a few days.

 

And this is without trading the low quality, low priced rug pulls.  In a prior post we talk about how the higher priced stocks are much better for rapid account growth.

 

But todays lesson is a big one and can make a huge difference in your trading results.  So you may want to bookmark this one and learn when to swing trade aggressively and when to just stick with the A+ opportunities.

 

When to Swing Trade Less Aggressively

 

In many cases, technical traders do not fully appreciate the power of the Fed and bond market.  Bond yields affect the value of stocks because if we can get a better return in US bonds then there is less appetite for stocks.  Especially stocks where you have to wait longer for earnings and cash flow to finally kick in.

 

A lot of investors will point to the 10 year US bond yield as the “risk free” yield to compare to expected stock returns.  The 10 year yield has inflation risk but you are nearly certain to get your principal back plus the interest if held to maturity.

 

So every other investment is compared to this risk free return.  You could also use the 2 year treasury yield as a comparison.  The 2 year treasury greatly reduces inflation risk since it completely pays off in just 2 years instead of 10.

 

In either case, if the bond yields move higher than more speculative stocks and growth stocks in general are worth a little less.  If the bond yields go lower than the speculative stocks are theoretically worth more.  All else being equal.

 

What the Fed does and says can definitely affect bond yields and therefore the value of stocks.  This is why the price action on top breakouts, and the stock market in general, tends to be more subdued just ahead of Fed meetings and other key Fed announcements.

 

Investors either just want to see if the Fed does or signals anything not expected by the market.  Or, they want to take advantage of the increase volatility around these announcements to get a better price for certain stocks.

 

Now if the Fed is not likely to change course at all then the pre-Fed weakness does not have much of an impact ahead of the next key Fed announcement.  Most of these announcements are made on a Wednesday during the week of a Fed meeting which occurs most months.

 

So this is why we continue to see weak breakouts ahead of key Fed announcements.  Stocks with a weaker catalyst or are just 2nd tier opportunities in general just do not work as well starting a few days ahead of the Fed.

 

We see similar price action ahead of key inflation data and the monthly payroll report.  Although the impact of the payroll report is not as pronounced in my experience.  For whatever reason.

 

But the bottom line is that we only trade the A+ opportunities starting a few days ahead of key inflation data and Fed announcements.  The very best high tight flag breakouts (the very best of the ones that meet the course rules) and top echelon earnings breakouts.  Again, this requires checking all the rules pre-market the day the stock reaches the entry point.

 

At the same time, we want to be very prepared to get into top technical trades when they reach the entry trigger right after Fed announcements and CPI/PPI inflation data.  PCE inflation is not quite as important.  Maybe half to 2/3 the impact that CPI and PPI has starting a few days ahead of its release.

 

 

When to be Most Prepared When Swing Trading

 

So get out your favorite economic calendar and mark down on your own calendar when CPI/PPI are released, when the next Fed meeting is (the Wednesday when the statement is released at 2pm EST) and PCE is released.  Starting a few days ahead of those dates, its time to stick to just the top A+ opportunities.

 

If you like to take quick shorts, its a great to use those strategies starting about 3 days ahead of these dates up until the data is released.

 

But we definitely want to have our watch list ready with all of the stocks in the most bullish technical pattern along with the stocks that just had a huge earnings beat and guidance raise.  We want to have this watch list ready with our alerts set the morning before the news comes out.

 

If the market reacts badly to the news, then its definitely not as good.  That being said, we saw 2 stocks that met the rules in the earnings eruptions strategy on Friday that both hit the profit target quickly.  Not bad for a terrible day for the market on a Friday in August.

 

Also, its good to look at an earnings calendar to see which stocks report just after key news on inflation and  key announcements from the Fed.  Again, price action on top earnings breakouts could be weak just ahead of the news and explode after the news is in.

 

We only have so much time and energy to trade so its a great idea to look at an economic calendar and mark those days when you want to be most prepared.  Again, a top echelon opportunity that fits the profile in our top 2 strategies (the top echelon high tight flag breakouts and top echelon earnings breakouts) is still very appealing.  But we have learned its best to avoid pretty much everything else.

 

After the news is released that can impact bond yields, its time to be ready.  This is when the best technical patterns with a fresh catalyst tend to make the big money for us starting that day.  We also want to check bond yields pre-market, including the 10 year yield, to see if the news really matters all that much.

 

So know when the next Fed meeting, next inflation report and jobs report are due and get ready to make some money on those days and the few days afterwards.  This is when the best breakouts often occur.

 

As with succeeding at anything, its all about preparation.

 

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