Based on the market health indicators I track, the stock market is mainly healthy, meaning I’m willing to deploy some capital buying into swing trades. But I’m keeping some of my account in cash because there are still some warning signs.
First, let’s look at the major indexes I track.
- The Nasdaq 100 and S&P 500 look great and are in strong uptrends. These indexes are composed of large companies.
- The NYSE Composite is a list of all stocks on the NYSE exchange, so a wide array of stocks from different industries and different sizes. This index is struggling to break out of a multi-month sideways range.
- The Russell 2000 index is filled with small-cap stocks. This index has been moving sideways for many months. It’s moving toward the top of the range but is still some distance from breakout levels.
- With the Russell 2000 lagging it means a wide segment of the stock population is flat and not moving higher aggressively. This means the market isn’t as healthy as it could be.
Next, let’s look at the Market Health Indicators I track (from top to bottom).
- 64% of S&P 500 stocks are above their 50-day moving average. Only 55% of all US stocks are above their 50-day moving average. This also shows the disconnect that we see in the index charts above—some types of stocks are peforming well, while others are not. It is generally much easier to swing trade profitably (on the long side) the more stocks are above their 50-day average.
- Volume, not important at this time.
- The red bars are showing Upvolume divided by Totalvolume on the NYSE exchange. No important values recently. Above 0.9 or below 0.1 are values I tend to watch for.
- The blue bars are the daily percentage movement of the S&P 500. Big moves are associated with downtrends and turning points. Small values are associated with an uptrend. This indicator is quiet, confirming the uptrend in the S&P 500. Values of -2 are a warning sign anytime they occur.
- The blue line is the NYSE Advance Decline Line. It should rise as the S&P 500 rises to confirm the trend. Right now it is not doing that. While the S&P 500 has moved well above its July high, the NYSE ADL remains below its. This could be resolved if the NYSE ADL keeps moving higher, but right now it is warning sign.
How This Affects My Swing Trading
During most of that recent flat period in the indexes, I wasn’t trading. I could see that stocks weren’t following through to the upside and the Market Health Indicators were weak. Only more recently have I started to see some stocks on my watchlists breakout and run to the upside. Those are the conditions we want to be trading in (let your own trades tell you whether conditions are right for your strategy or not!).
That said, there are still some small warnings signs, so I’m keeping some of my account in cash. I only fully deploy all my capital when everything is great.
Here is my most recent Swing Trading Stock Watchlist, which I am still using. So far we have seen some nice breakouts in a number of these stocks. Still waiting on quite a few to if they form the correct entry criteria.
I have several trades out right now and feel comfortable holding them. But I am not going to load up.
Have a great long weekend, and best wishes in trading endeavors this week.
Cory Mitchell, CMT
The Complete Method Stock Swing Trading Course covers my swing trading approach in-depth. It also lays out exactly when to trade four different strategies (that suit different market conditions), and how and when to scale back when conditions aren’t ideal. Trading when conditions aren’t right will typically lead to giving back all the gains accumulated during the good/easy times.