I am not currently considering taking long swing trades. This week (and last week) there is no stock watchlist. But I am monitoring market conditions. If they continue to improve, then I will start scanning again and taking swing trades.
The market health warnings are highlighted below. The main one is flagged with a red thumbs down.
From top to bottom:
- The top indicator is how many stocks are above their 50-day moving average. I find that it is a lot easier to make money when most stocks are moving up and above their 50-day average. Currently only 50% of S&P 500 stocks are above their 50-day, and only 38% of all US stocks are above their 50-day. Both are trending lower. This is a key reason I am not going to buy anything right now until these move back above the 50% level. I don’t know when that will occur. Could be very soon, or not for a long time.
- Next is volume. Nothing interesting there.
- The red bars are upvolume divdided by total voume (per day). This is currently neutral to bullish. We had a 0.1 (only 10% of volume in risking stocks) reading on July 19, which is bearish. But that was quicly followed by two days over 0.8 (80% of volume occurred in risking stocks), which offset the prior bearish day.
- The blue bars are how much the index moved each day in terms of percent. Single day drops of 2% or more are cause for concern. Not every 2% single-day drop causes a big downtrend, but every big downtrend has a 2% single-day drop near its start. This indicator is neautral because we have not seen a single drop greater than 2% since May, which is good to see in a bull market.
- The bottom indicator is NYSE advancing – declining stocks. It’s a running total and a good indication of underlying stregnth or weakness in the market. The S&P 500 is very close to highs and so is the NYSE AD line. So nothing exciting here yet. IF the S&P 500 makes a new high and the NYSE AD line doesn’t, that would be a warning sign that the rally may not be sustainable.
- From a price action perspective, we have nice uptrends in the Nasdaq 100 and S&P 500. But the NYSE Composite and the Russell 2000—which are much bigger indexes and more indicitive of the typical stock—have been chopping sideways and unable to make upside headway since May (February for the Russell). This means it is a highly selective stock market where some stocks are doing well, but many are treading water. I prefer to be most aggressive when the odds are heavily in my favor and all the indexes are moving well.
With trading, there is no reason to always be active. Wait for good times for your strategies. Right now is not an ideal time for my strategies, so I have no problem backing off and saving capital for the good times. If things do start looking better, I can always scan and look for opportunities to get into.
Cory Mitchell, CMT
The Complete Method Stock Swing Trading Course covers my swing trading approach in-depth. It also lays out exactly when to trade four different strategies (that suit different market conditions), and how and when to scale back when conditions aren’t ideal. Trading when conditions aren’t right will typically lead to giving back all the gains accumulated during the good/easy times.
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.