Nothing has changed since last week. The market indices remain near their recent lows.
The market health indicators are in poor shape for swing trading on the long side. I’m taking this time for myself and sitting on the sidelines in cash (and day trading).
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. Every index is at lows for the year, with the exception of the Canadian TSX Composite (more commodity stock in this index) but even it’s near recent lows going back to February.
Moving in unison lower. Poor health across all the indices. Not a great environment to be buying in. Prefer holding off and waiting for more favorable conditions. Swim with the tide, not against it.
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.
Currently, all the indicators signal poor health which tells me to avoid swing trading on the long side at the moment.
- 27% 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’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. POOR.
- Volume is not important at this exact moment.
- 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. There have been four 2% or greater drops since April 22. POOR.
- The blue line is the cumulative NYSE Advance-Decline Line. It is currently moving down with the S&P 500. POOR.
- The columns of blue ( I like blue, ok!) are NYSE up volume divided NYSE total volume. It is an indicator of buying and selling enthusiasm. Levels below 10% and above 90% are important (or back-to-back days above 80%). Nothing important here at the moment. 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. There are some setups out there, and the occasional one is working. I prefer buying when most setups are working. NEUTRAL to Poor.
What I’m Doing Right Now
I am not swing trading stocks on the long side.
If I see a short trade I may take it, but I mainly focus on long trades when conditions are right.
I’m day trading the EURUSD. That’s about it. Lots of movement and potential, and it’s something I can trade every day at the same time. I’m all about efficiency at the moment and not having to do homework on what to trade (golf season has started, which takes up much of my time).
EURUSD Day Trading Course covers how to do that.
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.