The market health indicators I trade have moved slightly into positive territory. This means I am willing to deploy some capital on swing trades, but require the health indicators to improve further to become an aggressive buyer.
I scan for, and trade, the following strategies: trend channels, contraction breakouts, and double consolidations. My primary focus right now is contraction breakouts. The watchlist below is based on this strategy.
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. All the indexes fell in September to varying degrees, but all have rebounded recently. The rebound in all of them is good to see.
- All the indexes are in short-term uptrends, having made higher swing highs. This short-term uptrend comes after bigger declines.
- The NYSE composite, which is all the stocks listed on the NYSE (a very broad assortment of stocks) is nearing its 52-week highs. A breakout would be bullish indeed. Ideally, the rest of hte indexes follow suit, but if a such a broad index can breakout, that means most stocks out there are doing pretty well which is favorable for swing trading on the long side.
- I DON’T PREDICT WHERE THE INDEXES WILL GO. No need for that. I simply assess the overall market health and that determines whether I buy, short, or do nothing in individual stocks.
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 is a good time to be swing trading individual stocks.
- 52.67% of S&P 500 stocks are above their 50-day moving average. 53.79% 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. We are justly above the 50% mark; that’s ok but not great.
- Volume is flat and not a major concern right now.
- 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. No warning signs here recently.
- The blue line is the cummulative NYSE Advance Decline Line. This indicator is getting very close to making new highs. If it makes new highs (daily close basis) before the S&P 500, the S&P 500 is also very highly likely to make new highs. This indicator is why I am willing to scan and look for trades this week.
How This Affects My Swing Trading
All this analysis is done on the daily charts, so I use it to determine whether I am going to take swing trades on the daily chart or not.
Conditions are improving but still aren’t great. For this reason, I will deploy some of my capital IF some of the trades on the watchlist trigger. Right now, I may deploy up to about 25% of the capital. If conditions improve, I will deploy more. If conditions deteriorate, my exposure is minimal, if I even get triggered into any trades.
Stock Swing Trade Watchlist for Week of Oct. 18 (and possibly 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.
An * denotes stocks that could set up and trigger within the week. Go through the list daily and write down which stocks are close to setting up as time goes on. Check on these ones frequently..or write down a small list of stocks you like the best from the list and watch them like a hawk.
US Swing Trading Stocks Watchlist
113 stock on the list. There were 213 back in August.
I also relaxed the criteria a bit. I reduced the 6-month return to >15% (was 20% on prior scans), which is about double the S&P 500. I reduced the volume requirement to 500K from 2M. There were 83 stocks with the old criteria.
There are lots of companies reporting earnings in the next month! Be ware of the earnings date for any trades taken.
CG* – more a range than a contraction
GNRC – little bit bigger pattern
CELH – has to move back up quickly
IKNX – low volume (doesn’t meet volume criteria)
VRTV – low volume (doesn’t meet volume criteria)
Canadian Swing Trading Stocks Watchlist
96 stock on the list. There were 43 back in August. The increase now is mainly due to strong commodity-related stocks. Reduced the 6-month return to >15% (20% on prior scans).
An * denotes stocks that could set up and trigger within the week. Go through the list daily and write down which stocks are close to setting up as time goes on. Monitor these stocks on a chart. ** denotes stocks that I find of high interest, often because of the potential for a large profit target.
UNS.TO* – more a range than a contraction, but nice recent consolidation. Conservative target.
TOU.TO* – Contracting less than 1 month.
PRYM.V – Big pattern. Needs to tighten up before I would consider it.
ECN.TO* – Pattern occurs below weird earnings spike then drop back August. Grindy movement.
CYP.V* – half cup pattern. On the bigger side.
BY Cory Mitchell, CMT
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.
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.