Swing Trading: Earthquakes, Oversold Markets and the End of the Month Effect

  • August 23, 2011
  • David Penn

Was it anticipation of Ben Bernanke’s Friday speech? Maybe the buying of overextended bears? Could you even credit the DC earthquake? It’s already been referred to as the “Earthquake Bottom” by one quick-Tweeting, stock market pundit …

There are two things that stocks had going for them coming into this week: dramatically oversold conditions and the End of the Month effect. Seeing the sharp move higher in stocks across the board on Tuesday suggests very much that oversold conditions have helped bring buyers off the sidelines in the short term. And the gains in some of the most popular growth stocks – many of them included in today’s report – suggests that the End of the Month effect may already be playing its part in the stock market’s latest advance.

As Larry Connors wrote:

“You may be aware of the ‘end of the month’ concept whereby money managers supposedly pile into the stocks at the end of the month in anticipation of 401(k) and retirement savings money coming in. Well, we decided to take a look at whether there was any statistical evidence to support this concept, and if there was, how we could potentially profit from this behavior.”

Read all about the End of the Month effect in Chapter 11 of Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs. If you don’t own the book, pick a free copy of the book by way of the link below.

Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs by Larry Connors and Cesar Alvarez

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Among the companies scheduled to report quarterly earnings on Wednesday are ^AMAT^ and ^AEO^. Both stocks continue to trade below their 200-day moving averages and were higher on the day in Tuesday’s trading.

Here are 7 Stocks You Need to Know for Wednesday.

Up 9% and closing back above its 5- and 200-day moving average ahead of trading on Wednesday were shares of ^AMZN^. 

The stock had closed lower for five days in a row, the last three in oversold territory, before Tuesday’s big bounce. AMZN was among the best performing stocks in the S&P 100 on Tuesday. 

New to Swing Trading? Read our primer, What is Swing Trading? .

Other growth stocks outperforming on Tuesday include ^CRM^, which gained more than 7% to finish above its 5-day, and ^LULU^. Shares of LULU soared by more than 11% in Tuesday’s trading after finishing in oversold territory for three days in a row. 
Among the better performing oil stocks on Tuesday were ^HAL^ and ^WMB^. The stocks, which continue to trade below their 200-day moving averages, gained more than 7% and 6% respectively ahead of trading on Wednesday.

Get to know the man behind TradingMarkets and The Machine in this extended interview.

What’s down on an up day? Shares of ^NEM^ pulled back by more than 2% as traders took profits in the wake of the stock’s rally into overbought territory above the 200-day. Newmont Mining was among the stocks highlighted in yesterday’s 7 Stocks You Need to Know (BTW, don’t miss an issue! click the link below to subscribe to 7 Stocks for free!) 

While traders were busy selling Newmont, they were just as aggressive buying shares of ^FCX^, sending the stock higher below its 200-day moving average by more than 3%.

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David Penn is Editor in Chief of TradingMarkets.com