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The US stock indices have been continuing their attempt to push higher off the June 16/17 lows.

There was a follow-through day on June 24, which still remains in effect. The other market health indicators are still not confirming. Therefore, this remains a “cautious buy” period. I’m deploying some capital, but until we start to see more signs of strength, I’m not loading up on long trades just yet.

Recent long swing trades that triggered have been working, but they haven’t reached their targets yet. I will continue to scan and look for potential trades 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. Those are regression channels displayed on most of the charts – they create a channel of “the best fit” to the price action, helping to highlight the overall trend.

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

All the indices are in overall downtrends. The US indices have been trying to push higher over the last couple of weeks. The Canadian indices are near lows as oil and gold stocks have sunk recently.

The follow-through days in the S&P 500 and Nasdaq 100 are the first signals to potentially start taking some long trades in strong stocks that are forming quality setups. But capital deployment should be minimal at this stage. If the market health indicators improve, then I’m willing to deploy more capital to long trades.

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 are trying to improve.

• 28% of S&P 500 stocks are above their respective 50-day moving averages. 38% 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. I'd say this is a poor indicator, although there has been some improvement.
• 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. We are still seeing some big swings, such as the 2% drop on June 28, but there's been nothing since then. I'd say this is a neutral indicator.
• The blue line is the cumulative NYSE Advance-Decline Line. It is currently showing a positive divergence, as it held above its prior low (green line) while the S&P 500 has made a lower low over that time frame. That is bullish, but not enough to act on alone. More recently it has been moving with the S&P 500. I'd say this is neutral, or slightly bullish.
• The blue columns are NYSE up volume divided by NYSE total volume. This tracks buying and selling enthusiasm. The last key level was a 92% downside day on June 16. There was an 89% upside day on July 7. That is not quite significant, but still good to see.
• The ultimate indicator is how many quality setups there are and how trades are working. The stocks I’ve been watching have been running to the upside, so that’s a good sign. But they haven’t reached targets, so I’m still not sure if long trades are fully working yet. That is why I’m only willing to deploy a portion of my capital.

What I’m Doing Right Now

I will be scanning this weekend or early next week to find more setups I like the look of. The more there are, the better, as that illustrates better market health.

I am 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 potential there as well. Take the time to refine your strategies or potentially learn another style of trading while the swing trading is slow.

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