Nothing has changed since last week. The market indices remain near their recent lows.

The market health indicators are in poor shape for swing trading on the long side. I’m taking this time for myself and sitting on the sidelines in cash (and day trading).

Pixabay

If the S&P 500 and/or Nasdaq 100 stay above their recent lows possibly we could have a Follow-Through Day late in the week. That said, it is only a possibility, and is only the first sign of a possible turn. The other indicators need to follow and they remain weak at this time.

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’s what each of the 4 indices represents:

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

2 Canadian stock indices are also included. The Composite tracks larger companies, while the Venture tracks very small companies.

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

Every index is in a downtrend and near lows for the year. The commodity-heavy Canadian TSX Composite index had been holding a bit better, but even it has collapsed recently into a short-term downtrend. It is in an expanding range going back to October.

Moving in unison lower. Poor health across all the indices. Not a great environment to be buying in. Prefer holding off and waiting for more favorable conditions. Swim with the tide, not against it.

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’s a good time to swing trade individual stocks.

Currently, all the indicators signal poor health which tells me to avoid swing trading on the long side at the moment.

• 21% of S&P 500 stocks are above their 50-day moving average. 18% of all US stocks are above their 50-day moving average. It’s generally much easier to swing trade profitably (on the long side) when more stocks are above their 50-day average. When this indicator is below 50%, it tends to be sideways or a downtrend for most stocks/indexes. We are below 50. POOR.
   
• Volume is not important at this exact moment.
   
• The dark 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. There have been five 2% or greater drops since April 22. POOR.
   
• The blue line is the cumulative NYSE Advance-Decline Line. It is currently moving down with the S&P 500. POOR.
   
• The columns of blue ( I like blue, ok!) are NYSE up volume divided NYSE total volume. It is an indicator of buying and selling enthusiasm. Levels below 10% and above 90% are important (or back-to-back days above 80%). Over the last couple weeks, there were 10% days (bearish) and a 90% upside day on Friday (bullish). This is the first signal of a potential bottom. But it is too early to act on it alone. Let the other indicators confirm.
  • The old way of creating this indicator on TradingView no longer seems accurate. I created an indicator called UpVol/TVol NYSE Lowry Upside Days. You can view it here, or search “Lowry” under Indicator.
• The ultimate indicator is how many quality setups there are and how trades are working. I will be running a scan this week just to see what is out there. There are some decent-looking setups out there. Would be nice to see more though..and to see them working after the breakout (before I just in and assume they will work in these conditions).

What I’m Doing Right Now

I am not swing trading stocks on the long side.
If I see a short trade I may take it, but I mainly focus on long trades when conditions are right.

I’m day trading the EURUSD. That’s about it. Lots of movement and potential, and it’s something I can trade every day at the same time. I’m all about efficiency at the moment and not having to do homework on what to trade (golf season has started, which takes up much of my time).