The market health indicators are in favorable territory for swing trading on the long side. All the major indices are moving up in unison.
A pullback in the major indices would likely create more quality trade set ups. Or if we see a lot of weakness, then I don’t mind going back to cash to see how things unfold.
Overall, I like what I’m seeing and I’m willing to deploy capital on the long side on quality swing trading setups. If the market remains healthy, the setups will come. So far, I haven’t been able to deploy much capital.
For traders looking for quick swing trades in stocks that tend to move a lot, I created a “Best Swing Trading Stocks List” which I’ll be updating monthly.
Here’s a 6-minute summary video of the current state of the stock market.
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.
The indices were in a downtrend but are pushing out of it. All have moved above prior swing highs from late June.
This doesn’t mean it will be a straight shot higher, but there is price action evidence that at least the short-term trend is up. As long as we’re trending up and the health indicators discussed below remain solid, I’m willing to take trades on the long side.
There was a pullback late in the week, but that doesn’t change the overall outlook yet. Still in a short-term uptrend until proven otherwise.
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 in good shape.
- 88% of S&P 500 stocks are above their 50-day moving average. 73% 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. Excellent.
- Volume was relevant on June 24 when it increased with the 3% price rise to create a Follow Through Day (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. No big drops in more than a month. Good.
- The blue line is the cumulative NYSE Advance-Decline Line. I want this line to start making higher swing highs and lows. It is doing that. It has also moved above its early April high before the S&P 500 moved above its April high. That is a bullish divergence and signals that the S&P 500 is likely to reach the April high before a new low. Good condition.
- The blue columns are NYSE up volume divided by NYSE total volume. It tracks buying and selling enthusiasm. There were 91% upside days on July 19 and August 10. Bullish.
- 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 have been scanning, but not a lot of stocks have been setting up and triggering trades. So I’m willing to trade, but haven’t been able to deploy much capital yet. As long as conditions stay good, I will keep scanning and looking.
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 prepare for the opportunities that are unfolding.
Sectors on the Move
Technology, Industrials, and Consumer Cyclical stocks are still the top performers over the last three months, but after a strong run they sold off recently. Industrials held up the best of the three sectors this past week.
Over the last month, everything is acting pretty well. That’s good to see.
Scan as usual, or run a scan with the added criteria of only looking for stocks within certain sectors to reduce the number of stocks on your list and reduce your scan time.
Sector performance provided by Finviz.
What I’m Doing Right Now
I’m scanning and taking stock swing trades when I get setups. A new stock watchlist will be published on the site early in the week. Watch for that.
I’m always day trading. Lots of movement and opportunity day trading stocks. I recently started working on a Day Trading Stocks Course, so I will get that out as quickly as possible. Probably sometime in October.
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.