Stock Market Health Update For Swing Trading - Week Of March 7

The stock market health indicators are in poor shape. There are still some pockets that are performing well, such as stocks related to commodities. I am open to deploying some (not all) capital in these strong stocks, assuming they stay strong and good setups continue to form.

A follow-through day this week would signal a possible turnaround in the indices.

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 is what each of the 4 indices represents:

• Nasdaq 100 – Tech stocks.
• S&P 500 – Large companies.
• NYSE Composite – A wide array of stocks, varying in size and industry.
• Russell 2000 – Smaller companies.

I have also started including 2 Canadian stock indexes for those in Canada. The Composite tracks larger companies, while the Venture tracks very small companies.

Charts are provided by TradingView – these are charts I personally use.

All 4 US indices are in downtrends right now, making lower swing highs and lower swing lows in price.

The Canadian TSX Composite Index recently made a higher swing low, but it has basically been moving sideways since mid-October. Choppy, not ideal, but at least it isn’t in a downtrend. This index is dominated by commodity-related stocks, which have fared better recently than most other sectors.

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.

All combined, these indicators are weak, indicating conditions are not ideal for initiating long swing trades.

• 34% of S&P 500 stocks are above their 50-day moving average. 34% 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. When this is below 50%, it tends to be sideways or downtrends for most stocks/indexes. We are below the 50% indicator.
• Volume is not important at this exact moment. Between day 4 and 10 of this rally I want to see the S&P 500 move up at least 1.25% on higher volume than the prior day. This would create a follow-through day. Until then, I don’t really care about volume. Monday, March 7, will be day 8 of this attempted rally. Follow-through days are often one of the first signals of a potential turnaround.
• 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’ve had many big intraday swings in price. That is representative of downtrending/choppy behavior.
• The blue line is the cumulative NYSE Advance Decline Line. It’s as weak or weaker than the S&P 500. No insight to be found here; it’s also trending lower.

What I’m Doing Right Now

I am scanning for stocks to buy that I like the look of. I’m willing to deploy minimal amounts of capital from my account for long swing trades. The rest stays in cash or is used for day trading.