Fundamentals in Swing Trading | Podcast Episode #252

0:07
Hey, I’m Ryan Mallory, and this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey, everybody, this is Ryan Mallory with Swing Trading the stock market. In today’s episode, we’re gonna talk about fundamentals and swing trading. What role do fundamentals have in our swing trading as a whole?

0:41
The email today comes from London and so I don’t use people’s names on this podcast, so I give them a good Florida redneck name and in this case, I’m going to give him the name of Ralph. So Ralph from London writes, Hi, Ron. This podcast is really great.

0:57
I like it’s down to earth presentation. A lot of other shows have a greasy car salesman feel to them, which you definitely avoid and have really helped me as a complete beginner. My question, how much does one need to know about fundamentals when screening for stocks? Part of the reason I like the idea of swing trading is the emphasis on technical analysis.

1:14
I feel it’s something I can get an actual grip on. Aside from avoiding holding through earnings reports like you often mention, are there any things about fundamentals that I should look for or do we just focus wholly on technical analysis and what the charts say? This I would prefer, but I want to make sure that I’m not doing anything wrong.

1:32
Also, when screening for stocks, what would be the main criteria that you look for? Thank you for all the great listening material, Ralph from London. All right, good question, Ralph. We’re gonna be talking about fundamentals with swing trading. I’m also gonna talk a little bit about screening for stocks.

1:48
But first, what am I drinking? I am drinking Kellumet 8-year Kentucky Straight bourbon whiskey. Got the sucker at Costco’s at a discount, pretty good price. I think it was like $39. And the port looks really nice. I mean, I use Glen Clear glasses when I’m drinking these bourbons, and it’s got a really nice dark amber color to it.

2:08
The smell is amazing. One of the better smells that I’ve experienced with a bourbon. You can definitely smell the sweet caramel flavors. I mean, it’s really strong. Now, the taste, it’s light, it’s thin, you can definitely taste the caramel flavors carry over from the smell to the taste.

2:25
The finish, it’s a little spicy, very Mild though, very subtle. You know, the first sip doesn’t come across that great. The second sip was much more impressive. I think I’m gonna give this a 6.4. I was hoping for something more like in the high 7s with this one, but 6.4 is about as high as it can go because it almost tastes a little bit watered down, it’s light, then I would say, is this an everyday sipper?

2:52
I’d say it’s a weekday sipper. Like, I wouldn’t want to drink this stuff on the weekends. No, I wanna really drink something a little bit more powerful. This is a 4590, so 45% alcohol, 90% proof. Everyday sipper, yes. Weekend sipper, no.

3:07
So Calumet eight year 6.4. Now, back to Ralph. So, I don’t get too heavy into the fundamentals. That means I’m not looking at balance sheets. I’m not listening in on earnings reports. Yes, I’ll pick up things that are coming out of the earnings reports like if Apple’s reporting earnings, you’ll see all over Twitter and you’ll find out, OK, this is what they said in the conference call or you’ll know, you know, whether or not.

3:31
They beat estimates or whether or not they surpass revenue expectations. But overall, I’m not really that interested in the fundamentals. There are certain times where I do, and we’ll get to that in a second, but some of the main ones that I care about is probably the, the price to earnings ratio that tells you essentially how much you’re paying for a stock relative to the amount of earnings per share that it brings in.

3:54
So if it has $1 of earnings per share and the stock is trading at $20 a share, then it has a PE of $20. You start getting into like the 25s and 30s, especially for your like your really big stocks. That’s when the stocks can oftentimes become a little bit more overvalued.

4:09
So the lower the price to earnings ratio, like let’s say if it was $2 per share that you were getting in the stock is trading at $10 then you’d have a PE of $5. The lower it gets, the more undervalued it is. So one of the things that we saw during this last run up from 2020 to 2021 off of the March 2020 lows, obviously.

4:29
You saw this huge spike in so many stocks, like stocks going upwards of like 200 PEs. I mean, you saw Tesla getting into triple digit PE ratios, extremely, extremely overvalued. In fact, Tesla is still overvalued, so there’s still a lot of room for it to come down. Now, why do people pay for stocks when they’re trading out like a 200 PE ratio?

4:47
Because they feel like the earnings potential in the future is worth paying a premium for in the present. Now, when you get stocks like Apple, which can trade for anywhere between like 15 to 25, that’s because so much of it is already known. It’s more of a value stock than it is a growth stock.

5:03
Take a stock like Walmart, yeah, it’s somewhat historically overvalued compared to what it’s been in the past. It trades at a PE ratio of 26, much more of a value stock than a growth stock. So that’s one indicator that I like to look at. The other one’s the price to sales ratio, that is essentially the same thing as the PE ratio, except that you’re substituting the earnings per share for the sales per share.

5:24
So you’re seeing what kind of revenue that the stock is bringing in for the price that it’s trading at. So if the sales comes in at $2 a share and it’s trading at $20. Then you have a price to sales ratio of 10. But just because the stock has a very good price to sales ratio doesn’t necessarily mean it’s going to have a good PE ratio or price to earnings ratios.

5:44
It’s important when you’re looking at the price to sales ratio that you’re also taking into account the PE ratio as well. And all this information is very easy to obtain through Yahoo.com, they’re on their finance section or Marwatch or tons of websites.

6:00
I mean, if it’s a financial website, it’s gonna have the PE ratio, the price sales ratio, and all that good stuff. Now, it’s also good to know, you know, what kind of debt the companies have, depending on what kind of market you’re in, because in the market that we’re in right now in 2022, where the stocks have just been getting pummeled, you have the NASDAQ down over 20% just in five months of trading so far this year.

6:20
This market is going to penalize the companies the most with the highest PE ratios, the stocks with the most debt, because all of a sudden now investors aren’t willing to pay the kind of premiums that they were willing to pay before. So now they’re wanting to look at companies that are consistent revenue generators, consistent earnings generators, companies that are safe, like waste management companies, like utilities companies like Nexstera Energy.

6:42
These are the companies that people are gonna go to because their revenue flow, even in a bad economy is much more predictable than say Square, SQ or Roblox, or a lot of the other companies out there that may not even have earnings yet to speak of or even revenue.

6:58
So the ones that don’t have the revenue, that don’t have the earnings, they’re the ones that are gonna get penalized the most, whereas like your Walmarts, your Dollar Trees, your Nexta Energies. Those are the ones that are gonna do the best cause they’re the most likely ones to survive a major market recession.

7:15
Same thing with Apple, which was kind of a new phenomenon because usually people avoid tech at all costs, but Apple did much better off than The whole tech sector, especially early on, and that’s because everybody kind of believe that, OK, we go through a recession, Apple’s not going to be going anywhere.

7:32
But then how does it relate to swing trading? Swing trading is much different than long-term investing. Long-term investing is usually, you know, well over a year. Day trading is essentially what its name says. It’s you’re trading and opening and closing a position within a day. Swing trading could be anywhere from a couple of days to a few months or even more sometimes.

7:52
For me, it’s always just a 3 months minus 1 day because I’m not going to hold it through an earnings report. So that’s the longest I’ll hold a swing trade for. But when it comes to swing trading, good fundamentals doesn’t necessarily mean that it’s going to be reflected in the results of your swing trade right away.

8:13
Sometimes it may take a long term for it to get properly reflected in the stock. Maybe it’s already reflected in the stock, so there’s really no edge in trying to make a swing trade based off of fundamentals. Now, when we start getting into a little bit crazier environments like what we’re in right now. I may be looking for good quality setups in companies that are least likely to be impacted by a market sell just because if I’m wrong on a trade, I don’t want to wake up to an SQ or a Roblox or restoration hardware or some stock that’s much more volatile being down 10 or 15%.

8:47
Or Shopify or DraftKings, those stocks will have much bigger swings. So I’m looking for the companies that have much more sustainable and longer history of revenue generation, earnings generation, lower PEs because there’s so much volatility in the market. I don’t need a stock that’s highly volatile in order to make some pretty good sizable gains in the market because the market’s already providing such big swings as a whole.

9:10
I don’t need to put a multiplier on that. One of the things that will also help you in a bad market is swingtradingthestockmarket.com. If you guys don’t know about this yet, this is my Patreon account that goes alongside of this podcast and You’re going to get all of my stock market research each and every day.

9:27
That’s going to include analysis on the market indices which include the S&P 500, the Russell 2000, the Nasdaq 100, plus you’ll get updates on my favorite indicators alongside of updates on Tesla, Microsoft, Apple, Amazon, Netflix, Google, and Facebook, as well as my weekly watch lists, both Bullish and Barish and my list of daily trade setups that I’m following each day and the most intriguing charts that I come across.

9:51
So check that out, swingtradingthestockmarket.com, incredible value, and you’re supporting this podcast in the process. Now, one of the things too that Ralph mentions is that he likes technical analysis because it’s something that he can get a grip on. And it’s really the retail trader’s way of being able to beat Wall Street because Wall Street really doesn’t care as much about technical analysis.

10:11
Sure, they’ll have technical analysts on staff, but it really benefits retail traders and individual investors the best because it gives you an edge over Wall Street. You can see what they’re doing. You can read the volume, you can see the footprints of Wall Street when they’re getting into a stock, when they’re fleeing a stock.

10:27
I mean, some of the biggest sell-offs this year has happened when you’ve seen the most selling coming out of the street. So you knew that they were serious about it. Some of the most unreliable sell-offs have been when the volume has been weakest. So technical analysis provides us with an opportunity to trade for ourselves, but Wall Street cares about the most.

10:44
It cares about the numbers. It cares about what’s in the earnings reports. It cares about all of its ratios. It talks to CEOs, it talks to CFOs and chief information officers. They have access to these companies that we don’t have. We call, and when I talk to Tim Apple, I know that’s not his real name, but it’s still, it’s a hilarious name.

11:02
If I call and ask to talk to Tim Apple, they’re not gonna let me talk to him, but You know, you get somebody from Goldman Sachs or JP Morgan that wants to talk to him. There’s a chance that he might actually take that call. The analysts, they can ask questions during the conference calls. Can we? No. So they have a huge edge in that department.

11:18
Does that make them better for it? Not really. I think most analysts on Wall Street. Stuck at their job. I think individuals are way better equipped to manage their own finances. If they put the time and effort into it, then somebody at a brokerage firm. Most of your brokerage firms and their financial advisors, they suck.

11:36
They took some tests, they still suck. And for those financial advisors that are listening to this podcast episode, no offense if you don’t suck. I’m sure there’s some good ones out there. But one of the things that helps me out the most using fundamentals of my trading really comes down to long-term investing or long-term trading stocks that I really want to hold for a very, very long time.

11:56
And that’s when you start seeing the technicals get extremely oversold, like the T2108, for instance, I use a lot. That’s going to tell you the percentage of stocks trading above their 40 day moving average when that It’s in the single digits that usually catches my attention as a potential short term bottom or even long term bottom depending on how drawn out the market sell-off is.

12:15
At that point, that’s when I want to start loading up on some of my long-term investments. I want to start targeting the stocks that have the lowest PE ratios, the lowest price of sales ratios, stocks that are just historically undervalued. And that’s where some really cool opportunities can exist when you have a technical setup that says, hey, this is an opportunity here to get in long term on this particular stock, along with the fundamental saying, hey, this stock is extremely undervalued.

12:42
Now his last question he was asking me about scanning for stocks. And before I get to that. To answer his question as a whole, do I need to have fundamentals incorporated in my swing training? Everybody has a different approach to swing training. I’m sure there’s some out there that do that. In fact, I would assume there’s plenty of people that do.

12:58
For me personally, I don’t need it and I don’t think it’s a prerequisite to successful swing training. Now, the scanning for stocks. This is gonna come down again to the individual trader. What are they hoping to accomplish as a swing trader? What kind of style do they have? If you’re a person that only wants to trade highly volatile stocks, then maybe you want to be scanning for stocks over a beta of 2 or 1.5 depending on.

13:21
On what your risk tolerance is. Some people want the moving average crossover, so they put that into it, you know, show me all the stocks that are exhibiting a 2050 crossover to the upside. For me, I thrive on consuming huge amounts of charts.

13:37
In a given day, I can go through 1000 charts because this is my job. This is what I do for a living. I trade stocks. So I don’t mind going through all of it, but if you have a full-time job, that would probably be a difficult task to undertake. So for me, when it comes to scanning for stocks, I’m scanning out the stocks that I don’t want to ever look at.

13:54
So for me, that’s going to be stocks under $10 I don’t care about. Most of the time, I want to trade stocks that have at least a beta of 1. That means it has at least the same amount of volatility as the overall market. Sometimes I’ll even increase that a little bit to 1.1 or 1.2. To, I also want certain volume levels.

14:11
I don’t like trading stocks that are under 100,000 shares or 200,000 shares. So usually there’s about a 3000 to 500,000 share minimum that I want to see in my stock. So I want to get rid of all the stocks that are lightly traded. And it goes on. So I mean, that’s how I scan for stocks. I’m really just trying to scan out the stocks that I don’t want to look at.

14:30
I will look at almost anything, but I just don’t want stocks that I know that there’s no chance of me even considering. And so to wrap up what we’ve learned here today, fundamentals, they’re not essential to swing trading. Can it be helpful? Yeah, I’m sure there’s swing traders out there that have successfully incorporated that into their trading, but it’s not necessary.

14:48
Technical analysis is really made for retail traders to succeed at the stock market. Candlesticks, technical analysis, and creating a strategy that suits your lifestyle, your tolerance for risk, and your ability to trade that strategy successfully.

15:05
And when it comes to scanning stocks, for me, I like to scan out the stocks that I don’t want no part of. I like to consume huge amounts of charts and I can usually flip through them 1 to 2 seconds at a time. And if you enjoyed this podcast, please be sure to leave a 5 star review.

15:22
Those things really do help tremendously for me, and I really do read all of your reviews, so make sure to leave a 5 star review and keep sending me your questions, ryan@shareplanner.com. I read them all and I try to put every one of them into a podcast episode. And don’t forget, check out swingtradingthestockmarket.com so you can get all my stock market research each and every day.

15:43
Thank you guys, and God bless. Thanks for listening to my podcast Swing Trading the stock market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world. With your membership, you will get a 7-day trial and access to my trading room, including alerts via text, And WhatsApp.

16:03
So go ahead, sign up by going to shareplanner.com/tradingblock. That’s www.shareplanner.com/trading-block, and follow me on SharePlanner’s Twitter, Instagram, and Facebook where I provide unique market and trading information every day. If you have any questions, please feel free to email me at ryan@shareplanner.com.

16:24
All the best to you and I look forward to trading with you soon.