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The market health indicators are in favorable territory for swing trading on the long side. All the major indices have been moving up in unison. Recent watchlist stocks have been acting favorably, with some quickly reaching their targets. Overall, I like what I’m seeing, and I’m willing to deploy capital on the long side on quality swing trading setups.

I’m looking for trade setups based on contraction patterns and cup-and-handle patterns.

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 – these are charts I personally use.

Stock were in a downtrend, but the indices are trying to push out of it. Some have moved above prior swing highs. This doesn’t mean it will be a straight shot higher, but it’s good to see that the downtrend is also questionable.

As long as we are trending up (yes, there will be pullbacks, which will create more trade setups for us) and the health indicators remain solid, I’m willing to take trades on the long side.

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. The market health indicators have been trying to improve.

• 77% of S&P 500 stocks are above their respective 50-day moving averages. 68% of all US stocks are above their respective 50-day moving averages. It’s generally much easier to swing trade profitably (on the long side) when more stocks are above their 50-day averages. When this indicator is below 50%, it tends to signal sideways movement or a downtrend for most stocks/indexes. This is excellent.
• Volume was relevant on June 24 when it increased with the 3% price rise to create a follow-through day.
• 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 haven't been any big drops in nearly a month. That's pretty good, but ideally the daily movements should stay within the bands. That is more typical of uptrending behavior. This indicator is still volatile, but it has been improving.
• The blue line is the cumulative NYSE Advance-Decline Line. I want this line to start making higher swing highs and lows. It has been doing that. It has also moved above its June high before the S&P 500 moved above its June high. That is a bullish divergence, and it signals that the S&P 500 is likely to move above its June highs as well. This is good.
• The blue columns are NYSE up volume divided by NYSE total volume. This tracks buying and selling enthusiasm. There was a 91% upside day on July 19. This is bullish.
• The ultimate indicator is how many quality setups there are and how trades are working. I’ve been creating watchlists over the last few weeks, and many of the stocks have broken higher and are acting well. Some have hit targets or are well into profitable territory. This is favorable, even though I may not have been in all the trades. Seeing trades that work lets me know conditions are favorable for deploying capital.

Sectors on the Move

Over the last month, consumer cyclicals, technology, and industrials have been the top sectors. Energy was hot last week. Scan as usual, or run a scan with the added criteria of only looking for stocks within certain sectors to reduce the number of stocks on your list and reduce your scan time.

Sector performance provided by Finviz.

What I’m Doing Right Now

I’m scanning and taking stock swing trades when I get setups. I’m also day trading, as always. There is a lot of movement and opportunity when day trading stocks, but I primarily day trade the EUR/USD currency pair every morning for one to two hours. There is a lot of opportunity to be found in that currency pair.

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