Swing Trading: Trading the Pullback at the End of the Month
Our theme over the past few days has been the End of Month effect. The End of Month effect is the upward bias in stocks toward month’s end, market behavior that was researched, quantified and published in Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs.
With stocks pulling back sharply in the final week of trading in July, traders will have another opportunity to see whether or not the End of Month effect appears once again to lift stocks. Heading into trading on Thursday, markets like the S&P 500 have already closed in oversold territory above the 200-day moving average two days in a row. Smaller cap stocks, as represented by the Russell 2000, have closed oversold for three days in a row. As these indexes move lower, the likelihood of a short-term bounce increases.
For more information about the End of Month effect on stocks, read Chapter 11 of Short Term Trading Strategies That Work by Larry Connors, founder and CEO of TradingMarkets. If you don’t have a copy of the book, you can get one for free at the link below.
Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs
Here are 7 Stocks You Need to Know for Thursday
Among the bigger gainers in the S&P 500 ahead of trading on Thursday were shares of ^WMB^.
WMB had pulled back for two days in a row before rallying by more than 4% in Wednesday’s session. The stock closed at its highest level since the spring.
Pulling back for a fourth day in a row ahead of its scheduled earnings announcement on Thursday were shares of ^BMY^. Wednesday’s sell-off marked the stock’s return to oversold territory above the 200-day moving average.
Off by more than 2% and also reporting earnings on Thursday is ^EXPE^. The stock has been rangebound at its highest levels of the year and, despite pulling back on Wednesday, remains above oversold territory.
^AMZN^ rallied to its highest levels of the year, gaining more than 3% in advance of trading on Thursday.
The rally in AMZN puts the stock back in overbought territory above the 200-day moving average.
^SBUX^ is scheduled to report quarterly earnings on Thursday. The company’s stock pulled back for a third session out of the past four and was down 3% on Wednesday.
In another example of the perils of buying stocks trading below the 200-day moving average, shares of ^JNPR^ plunged by more than 20% ahead of trading on Thursday.
Pressure on retailers sent shares of ^HOTT^ lower by more than 6% on Wednesday. The stock, which has closed lower for four days in a row, is now oversold above the 200-day moving average.
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David Penn is Editor in Chief of TradingMarkets.com