A follow-through day last week was the first signal of a possible turnaround (to the upside) in the major stock indices.

The other health indicators are improving. I took one swing trading position last week which is almost at the target and I will add more positions if stocks continue to set up and the health indicators continue to improve.

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.

All the indices made a higher swing high recently, indicating a short-term uptrend. The longer-term trend remains down.

The short-term turns before the long-term.

It’s not a signal to load up on the longs yet, but it does tell me it is ok to start nibbling at some long swing trades that are triggering entries on quality setups.

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 are improving.

• 45% of S&P 500 stocks are above their 50-day moving average. 38% 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. We are below 50, but rapidly improving.
  
  
• Volume is not important at this exact moment. The higher volume on May 26 (relative to May 25), combined with the strong move to the upside in the S&P 500 created a follow-through day.
  
  
• 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. The daily movements are still volatile, which is indicative of a downtrend or turning-point action.
  
  
• The blue line is the cumulative NYSE Advance-Decline Line. It is showing positive divergence relative to the S&P 500. While the SP500 made a lower low on May 20 (relative to May 12) the AD Line made a higher swing low and has continued to advance with the S&P 500. OK to Good.
  
  
• The columns of blue ( I like blue, ok!) 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%). On May 13 there was a 90% upside. These often occur within a week or so of a bottom. This was followed by three 80%+ days in a row on May 25-27. That’s Good.
  • 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 will be running a scan this week. Many of the stocks from the prior watchlist have moved well, which is encouraging.

What I’m Doing Right Now

I have started taking long swing trades. I am not loading up. I currently only have about 10% of my capital deployed.

I will add more positions this week IF I continue to see quality setups and market health indicators continue to improve. I will be creating a new watchlist on Tuesday.

I’m also day trading the EURUSD. Lots of movement and potential. I trade it every morning.

EURUSD Day Trading Course covers how I trade it.

Day trading stocks is also good. Lots of movement there as well.

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.