Overall, stock market health conditions are poor for taking swing trades on the long side. Since most of my swing trades are based on the daily chart, and the trades last 1-4 weeks, I don’t like taking these types of trades in poor conditions. I am in cash.

Taking short trades is an option, such as trading descending channels.

The trading system in the Complete Stock Swing Trading Course is designed so that we don’t really care if the market goes up or down. We make money in good times and stay out for the bad times (or possibly take some short trades, which is also discussed)

Let’s look at how the market is doing currently, and why I rate the conditions as “poor”(on a scale of: bad/poor, ok, good, ideal).

How the Market Indexes Are Doing

I look at 4 different US indexes because they each tell a different story about overall stock market health. The stock market is healthiest, and swing trading stocks on the long side is most profitable, when all these indexes are in uptrends.

I have also started including 2 Canadian stock indexes for those in Canada.

Charts are provided by TradingView – the charts I personally use.

Everything is abysmal. There are downtrends in the Nasdaq 100, S&P 500, and Russell 2000, as well as the Canadian indices. The NYSE Composite is just barely above its prior swing low. But it has been moving mostly sideways since May anyway, so the price is just whipsawing up and down.

No reason to buy until we start to see improvement.

There’s no need to pick bottoms as something is dropping. Wait for a turn higher. The amount missed is miniscule compared to the amount saved.

— Cory Mitchell, CMT (@corymitc) January 19, 2022

State of the Market Health Indicators

The following chart shows the market health indicators I track. They also tell me the condition of the stock market overall, and whether it is a good time to be swing trading individual stocks.

All combined, these indicators are weak, weak, weak, indicating conditions are not ideal for initiating long swing trades.

• 32% of S&P 500 stocks are above their 50-day moving average. 22% of all US stocks are above their 50-day moving average. It is generally much easier to swing trade profitably (on the long side) when more stocks are above their 50-day average. When this is below 50%, it tends to be sideways or downtrends for most stocks/indexes.
  
  
• Volume is not applicable currently, but has been escalating on the decline.
  
  
• The red bars are showing Upvolume divided by Totalvolume on the NYSE exchange. Above 0.9 or below 0.1 are values I tend to watch for. Nothing of interest here currently, we can see that there as been very little upvolume the last several days (almost all down volume).
  
  
• 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. Values of -2 are a warning sign anytime they occur. We have multiple days recently with big selloffs.
  
  
• The blue line is the cummulative NYSE Advance Decline Line. While the S&P had moved above its November and December high points in early January, this indicator did not. This is a bearish divergence, which means there is low participation in the rally. This is a warning sign until it corrects itself. So far it hasn’t.

The indicators are not currently pointing to anything positive. No reason to be buying yet. This doesn’t mean the indexes or some stocks can’t/won’t bounce higher. They may. But I have no interest in trying to catch the bottom. If things start looking better, then I will start buying stocks again. Until then, I am holding off.

What Am I Doing Right Now

I am not buying into any swing trades currently. I am in cash. I may consider some short trades, or possibly buy an inverse ETF (goes up and the market drops), but these are typically very short-term trades, and I don’t usually put much capital toward them.

I am willing to make some “earnings play” trades, but given the market conditions, my position size will be small if I do end up taking any of these. I discuss this approach in the Drift Trader article. Also, if any trades are taken in these poor conditions, I am using an aggressive stop loss and I am out at any sign of a reversal in the stock. No reason to “hold and see what happens” when we already know conditions are shitty.

I am always day trading. I day trade forex every day, which occupies me and produces regular income when I am not actively swing trading stocks due to poor stock market conditions. Here is an article on day trading stocks.

Doing these types of optional short-term trades isn’t required.

The standard approach for swing trading covered in the Complete Method Stock Swing Trading Course does just fine on its own. It capitalizes in good conditions and keeps capital safe when conditions are poor. But if you find you are compelled to take trades, even when conditions aren’t good, then maybe adding in some of these other trading styles may be an option for you.

By Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.