Stock Market Health Update For Swing Trading - Week Of Feb. 28

The stock market health indicators are in poor shape, yet recent trades, mainly in commodity-related stocks, are working well. Therefore, I’m continuing to deploy a limited amount of capital, about 20% of the account, to long swing trades.

Quality trades are in short supply in this environment. Over the last month or so, I have seen about one quality trade per week materialize from my watchlist. A new stock watchlist and some recent trades are discussed below.

How the Market Indexes Are Doing

I look at 4 different US 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.

I have also started including 2 Canadian stock indexes for those in Canada.

US and Canadian stock index comparison Feb 27

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. Interestingly, the Russell 2000, which focuses on small-cap stocks, just barely made a new swing low on Feb. 24 and is quickly moving back toward the recent high. If that downtrend can start turning in small-caps, it’s a good sign that the risk appetite of investors is returning. That is yet to be seen, though.

The Canadian TSX Composite Index recently made a higher swing low, but it has basically been moving sideways since mid-October of last year. 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.

Jan. 31 was a follow-through day. It’s often the first potential signal of a bottom, but it isn’t always accurate. That’s why I use the other measures below to confirm the signal. None of them confirmed, however.

The S&P 500 made a new low on Feb. 24. That is day 1 of the count, and a new follow-through day is needed to signal a potential turn to the upside.

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.

S&P 500 with market health indicators feb 27

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

  • 40% of S&P 500 stocks are above their 50-day moving average. 39% 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% level.
  • Volume is not important at this exact moment. Between day 4 and 10 of this rally I will want to see the S&P 500 move up at least 1.25% on higher volume than the day prior. Until then, I don’t really care about volume.
  • 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 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 is as weak or weaker than the S&P 500, so it is confirming the downtrend currently.

US Swing Trading Stock Watchlist

This a not a buy list. It is stocks I’m watching because they have the potential to form a contraction/triangle pattern. I watch for these stocks to form valid entries based on the strategy. This strategy and others are covered more in-depth in my Complete Method Stock Swing Trading Course, including how to scan and find trades.

For comparison, I left the prior scan on the right, but in my actual scan, I updated a few things:

  • Price vs. 52-week High > 70.
  • 200-day > 100.
  • 50-day > 90.

The rest I left the same. The S&P 500 is just below its 200- and 50-day MAs, so I increased these criteria slightly so that I am only seeing stocks that are similar or stronger. The S&P 500 is about 10% off its highs, but some stocks are more volatile. So I’m still giving this a little room, but I want to see stocks within 30% of their highs.

The exact numbers don’t matter too much. Whether you put 100 or 90 on the 50-day, it isn’t going to matter too much. As long as you get a few quality trade candidates, that is what matters.

Here are some of the stocks I am watching:

Canadian Swing Trading Stock Watchlist

I bumped volume up to 100,000. Compared to the prior scan used (graphic) I altered the following criteria:

  • Price vs. 52-week High > 70.
  • 200-day > 100.
  • 50-day > 90.

Here are more stocks I am watching:

Here are the recent breakouts from the prior watchlists:

contraction pattern swing trade examples

WTE and CNQ from the prior watchlist broke out of nice consolidations. TGA broke out, but it’s messier with a less clear entry and stop loss point. I am not interested in that one.

Here are some others, including one that didn’t work out, SALT, and a couple of others from a little while back.

more contraction pattern swing trade examples

What I’m Doing Right Now

I am scanning for stocks to buy that I like the look of. I am willing to deploy some capital - approximately 20% of my account for long swing trades. The rest stays in cash or is used for day trading.

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 ...

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