Based on the market health indicators I track, I’m taking it easy and will not be aggressively buying trade setups based on daily charts until conditions improve.

There are a couple of market health indicators in bearish mode, but another is indicating this is only likely to be a minor correction. More on that below.

These are the trade setups I watch for: trend channels, contraction breakouts, and double consolidations.

First, let’s look at the major indexes I track.

I look at 4 different indexes 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. We don’t have that right now. This is one of the reason I may take some trades, but I won’t be deploying all my capital right now.

• The Nasdaq 100 and S&P 500 were looking quite good, but turned lower at the start of September. The have both made lower swing lows this past week.
  
  
• The NYSE Composite is a list of all stocks on the NYSE exchange, so a wide array of stocks from different industries and different sizes. This index has struggled to break out of a multi-month sideways range. It too recently fell to the bottom of the range. We’ll see if it can stabalize and bounce there.
  
  
• The Russell 2000 index is filled with small-cap stocks. This index has been moving sideways for many months. It’s currently near the middle of the range.
  
  
• I DON’T PREDICT WHERE THE INDEXES WILL GO. No need for that. I simply assess the overall market health and determines whether I buy, short, or do nothing in individual stocks.

So we have two indexes that have been flat for some time, and the two strong ones have turned lower. That tells me that conditions aren’t ideal and that I shouldn’t be buying stocks aggressively here. If the indexes start pushing up again, there will be plenty of time to get into trades.

The market health indicators discussed below say pretty much the same thing: “Tread carefully.”

Next, let’s look at the Market Health Indicators I track (from top to bottom).

• 32% of S&P 500 stocks are above their 50-day moving average. 42% of NYSE stocks (a broader basket of stocks) are above their 50-day moving average. It is generally much easier to swing trade profitably (on the long side) when more stocks are above their 50-day average. These current readings are a warning signs.
  THESE INDICATORS ARE CURRENTLY UNVAILABLE ON TRADINGVIEW. HERE IS AN ALTERNATIVE ON STOCKCHARTS: https://schrts.co/rHprvyZT

• Volume, not important at this time.
  
  
• The red bars are showing Upvolume divided by Totalvolume on the NYSE exchange. No important values recently. Above 0.9 or below 0.1 are values I tend to watch for.
  
  
• The 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. We had a 2.04% drop on Sept. 28. That warning sign remains in place.
  
  
• The blue line is the NYSE Advance Decline Line. It is actually showing something positive right now. While the S&P 500 and Nasdaq 100 made lower swing lows this week, this incicator make a higher swing low. It is not a buy signal, but it doesn’t incidate that that selling was not as wide spread as the Nasdaq and S&P 500 made it appear. Looking at teh

How This Affects My Swing Trading

When there are warning signs like this, I severely restrict new trades based on the daily chart.

I don’t close existing daily chart trades (taken before the warning signs) when warning signs arrive. There was a plan for those trades and I stick to it. If the market does move higher, I want that exposure and the potential to profit. I just don’t want to add to my exposure when there are warning signs. Also, individual stocks don’t always follow the index. I recently uploaded shares for a more than 110% profit in a stock I bought weeks ago that shot up last week even while the market was down.

Trust your trades. The health indicators control our exposure/capital deployment, and our trading strategies control our individual trades.

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.