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.

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.

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:

• CNQ.
• SEAS – not a perfect pattern by any means, but strong earnings recently, could be worth a watch.
• AR.
• LYV.
• FANG.
• ERF.
• CDEV.
• CVE.
• MTDR.

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:

• POU (PRMRF).
• ARX (AETUF) – tiny pattern seen.
• TCN.
• KEL (KELTF).
• PEY (PEYUF) – big pattern seen.

Here are the recent breakouts from the prior watchlists:

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.

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.