It is a holiday in the US on Monday, June 20th. The stock market is closed that day.
Market health remains poor. I am not taking long swing trades until we start to see an improvement. How market health is assessed (for swing trading) is discussed below.
I was participating in some oil stocks but was back to 100% cash as of early June. Many of those oil charts were decimated last week with big drops. So at the moment, there is no place to hide. I’m staying in cash and awaiting better opportunities.
Many #oil stocks are now violating 1 of my major swing trading rules: don't buy if this correction is much larger (%) than prior corrections (%) in the uptrend.— Cory Mitchell, CMT (@corymitc) June 18, 2022
Mark up on $DOCU shows. $XLE biggest drop since Oct.
Some oil stocks may still have good setups. But many are broken. pic.twitter.com/Yr6RtltZFN
Being aware of bigger drops has saved me a lot of money in the past, and is one of the critical things to watch for as discussed in the Complete Method Stock Swing Trading Course. It’s crucial to not only have strategies, but also have guidelines for when those strategies are traded, and when they are not.
I also wanted to touch on investment vs swing trading. Know your approach with each and don’t mix them up.
Don't confuse an investing strategy with a #swingtrading strategy. I see many people flip-flop and start treating their investments like swing trades, and their losing swing trades like buy-&-hold investments.— Cory Mitchell, CMT (@corymitc) June 13, 2022
Know your strategy for each and stick to it.
For my long-term buy-and-hold account I regularly buy INDEX ETFs. The market moving up and down doesn’t change that. The goal of that account is to simply to get close to the 9 to 10% per year average the stock market has produced over the last 150 years. There is a clear strategy discussed in the Passive Investing eBook.
This is not to be confused with swing trading, which is actively buying and selling for quicker profits and hopefully much higher returns. I stay out when conditions are unfavorable (now) and try to capitalize heavily when conditions are favorable.
If you invest and swing trade, have strategies for both. If you mix the two, you always have excuses for making poor decisions.
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.
Not much to say here. All indices are in downtrends and near lows.
When the stock market turns around, there will be plenty of opportunities to profit. No need to try to pick the bottom to be the first one in.
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.
The market health indicators were trying to improve but turned poor the last few days.
- 2% of S&P 500 stocks are above their 50-day moving average. 15% 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.
- Volume is not currently important for my purposes.
- 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. June 9, 10, 13, and 16 were both greater than -2% drops. Poor.
- The blue line is the cumulative NYSE Advance-Decline Line. It is currently showing a positive divergence in that it is currently holding above its prior low (green line) while the S&P 500 has made a lower low over that time frame. Neutral; not bullish enough to act on alone.
- The columns of blue are NYSE up volume divided by NYSE total volume. It tracks buying and selling enthusiasm. Levels below 10% and above 90% are important (or back-to-back days above 80%). 96% downside day on June 13 and 92% downside day on June 16. Poor.
- 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 was almost nothing on it. So there are few quality setups, and any recent breakouts likely failed. So not a great time to be taking long swing trades.
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
No long swing trades.
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.