The market health indicators are currently mixed. This means I may take some trades, but I am not loading up because conditions are not ideal for swing trades on the daily chart (trades typically lasting 1-4 weeks). Conditions are ok, but not ideal.
Happy new year everyone. The stock market performed well last year, and whether it is good or bad this year, I am excited to trade it. I hope you are too. The trading system in the Complete Stock Swing Trading Course is designed so that we don’t really care if the market goes up or down. We make money in good times and are out for the bad (or possibly shorting)
Let’s look at how the market is doing currently, and why I rate the conditions as “ok” but not ideal (on a scale of: bad, ok, good, ideal).
Then, we’ll check out the current watchlist.
How the Market Indexes Are Doing
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.
The Nasdaq 100 is in an overall uptrend but is currently ranging since November. The price is near the highs of this short-term range. No problems here.
The S&P 500 is in an overall uptrend and has broken above its two-month range. It is currently consolidating. No problems here.
The NYSE Composite is moving back toward its highs. But overall the index has been moving sideways for many months. That said, it is at least at the top of the range.
The Russell 2000 index, which tracks small-cap stocks, has been moving sideways for a year. It is in the middle of its range and therefore is not in an uptrend.
So overall we can see the indexes are mixed in their signals. We have two performing pretty well, one moving sideways but near the top of this range, and another moving sideways in the middle of its long-term range.
The price action on January 4 was also rather strange: a big up move on the NYSE Composite and a big down move on the Nasdaq 100. Just more conflict which says things aren’t ideal, but overall are “ok”.
I also added in the Canadian TSX Composite which tracks the largest 60 companies in Canada, and the TSX Venture Composite which tracks Canadian small-cap stocks (more like micro caps). The TSX Composite remains in an overall uptrend but weaker than the S&P 500, and the TSX Venture is in an overall downtrend. Again, not ideal if you are trading Canadian stocks.
State of the Market Health Indicators
The following chart shows the market health indicators I track. They also tell me the condition of the stock market overall, and whether it is a good time to be swing trading individual stocks.
- 78% of S&P 500 stocks are above their 50-day moving average. 51% of all US 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. The S&P 500 indicator is doing very well, but when we look at all US stock, this indicator is on the cusp of acceptable.
- Volume is not applicable currently.
- The red bars are showing Upvolume divided by Totalvolume on the NYSE exchange. Above 0.9 or below 0.1 are values I tend to watch for. Nothing of interest here currently.
- 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. Currently the values are smaller, which is more representative of an uptrend.
- The blue line is the cummulative NYSE Advance Decline Line. While the S&P above its November and December high points, this indicator is not. Thia is a bearish divergence, which means there is low participation in the rally. This is a warning sign until it corrects itself.
As with the indexes, the market health indicators are also mixed. The NYSE AD line isn’t great, and the percentage of stocks above their 50-day is decent overall, but not ideal.
The Complete Method Stock Swing Trading Course covers how to assess market health so that we are trading at ideal times, and saving our capital when conditions aren’t ideal. It also reveals several swing trading strategies that exploit certain patterns that tend to occur before stocks make an explosive move.
What Am I Doing Right Now
I am taking some swing trades based on the daily chart, like those mentioned on the watchlist below (when they set up).
I am also willing to trade some “earnings plays”. I discuss this approach in the Drift Trader article.
But I am not going super hard. I prefer to deploy all my capital when conditions are ideal. That’s when the profits flow easiest. When conditions are ok, like now, my goal is to mainly preserve capital, but maybe make a bit if a few nice trade setups come along. I do this by deploying some capital, but not all.
Swing Trade Stock Watchlist for Week of January 4 and Beyond
This is NOT a buy list. It is simply a list of stocks that are forming contraction patterns. I then watch these stocks to see if they form valid entries. Also, since I can’t trade all the stocks on the list (if they were to all trigger), I pick the ones I like best from the list and place orders in those.
US Swing Trading Stocks Watchlist
122 stock met the scan criteria on the right. This was reduced to those below. This week I used >200,000 average volume instead of 500,000. Using 500,000 the list had 70 stocks.
DSKE – a lot of drifting, not much trending.
FLL – big 7-month pattern and small almost 1-month pattern. Needs to tighten up and provide a nice consolidation.
BJ – needs to move back up and consolidate.
TGA – broke out Jan. 3
Canadian Swing Trading Stocks Watchlist
64 stocks met the scan criteria on the right. This list was reduced to those below.
SALT.V – needs to consolidate
PIPE.TO – formed, broke out Jan. 4
TGL.TO – gapped higher out of pattern on Jan. 4. Pattern is large.
Want to learn how to scan for and trade these patterns? Know which ones to trade and which ones to leave alone? Learn this strategy and others in the Complete Method Stock Swing Trading Course.
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. I may take positions in some of these stocks as they trigger, but I can’t trade them all. Which stocks I trade will depend on conditions at the time, risk/reward, stock strength, and other factors.