Stock Market Health Update for Week of July 4

July 4 is a holiday in the US. The US stock market is closed. The Canadian market is open.

There was a Follow-Through (FTD) on June 24. The market has pulled back since then, but that FTD remains in effect.

An FTD is often one of the first signals of a potential turnaround. Yet, most of the other market health indicators are still in poor shape.

This is a time to be scanning, looking for quality setups and seeing how they move, but I’m not aggressively buying yet. The time will come. I haven’t seen enough stocks moving strongly to the upside to get me excited yet. This remains a bear market until proven otherwise. Deploying minimal capital to long swing trades.

How the Market Indexes Are Doing

I look at 4 different US indices 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. Here’s what each of the 4 indices represents:

Nasdaq 100 – Tech stocks
S&P 500 – Large US companies
NYSE Composite – A wide array of stocks, varying in size and industry
Russell 2000 – Smaller companies

2 Canadian stock indices are also included. The Composite tracks larger companies, while the Venture tracks very small companies.

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

Those are regression channels on most of the charts – they create a channel of “best fit” to the price action, helping to highlight the overall trend.

US and Canadian stock indices market health analysis as of July 4

All the indices are in overall downtrends. The US indices are trying to push higher the last couple of weeks. The Canadian indices are near lows as oil stocks have sunk recently.

The FTDs in the S&P 500 and Nasdaq 100 are the first signal to potentially start taking some long trades in strong stocks that are forming quality setups. But capital deployment should be minimal at this stage. If the market health indicators (discussed below) improve, then I’m willing to deploy more capital to long trades.

State of the Market Health Indicators

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

S&P 500 daily chart with market health indicators for week of July 4

The market health indicators are trying to improve.

23% of S&P 500 stocks are above their 50-day moving average. 31% of all US stocks are above their 50-day moving average. It’s generally much easier to swing trade profitably (on the long side) when more stocks are above their 50-day average. When this indicator is below 50%, it tends to be sideways or a downtrend for most stocks/indexes. Poor but improving.
Volume was relevant on June 24 when it increased with the 3% price rise to create a FTD.
The dark 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. Still seeing some big swings, such as the 2% drop on June 28. This is not uptrending behavior.
The blue line is the cumulative NYSE Advance-Decline Line. It is currently showing a positive divergence as it held above its prior low (green line) while the S&P 500 has made a lower low over that time frame. That is bullish, but not enough to act on alone. This is indicator is positive.
The blue columns are NYSE up volume divided by NYSE total volume. It tracks buying and selling enthusiasm. The last key level was a 92% downside day on June 16. This indicator remains bearish. Not upside confirmation yet.
- The old way of creating this indicator on TradingView no longer seems accurate. I created an indicator called UpVol/TVol NYSE Lowry Upside Days. You can view it here, or search “Lowry” under Indicator.
The ultimate indicator is how many quality setups there are and how trades are working. I ran a quick scan and there are some decent-looking setups, and more that could develop over the next week or two. As mentioned though, it is very early in this rally. As the health indicators improve, I would expect to see more quality swing trade setups in individual stocks. So I will be watching for that.

My entire method of swing trading stocks is covered in the Complete Method Stock Swing Trading Course. Now is a great time to review the material and get ready for the next opportunities which are coming our way. Markets always turn around, and when they do, you want to be armed with ways to profit from it.

What I’m Doing Right Now

I will be keeping an eye on what stocks are setting up. I may deploy some capital to quality setups as we do have a few of the health indicators in our favor. But to get aggressive I would want to see the health indicators improve some more. So minimal capital deployment on the long trades currently.

I am day trading, always. Lots of movement and opportunity day trading stocks, but I primarily day trade the EURUSD every morning for 1-2 hours. Lots of potential there as well.

Take the time to refine your strategies while the market is weak. Don’t let the time go to waste.

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.