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The health of major stock market indices has improved dramatically in the last couple of weeks. As a result, I’m willing to deploy capital. I would be willing to deploy all of it, if and only if, I can find enough trades (which probably won’t happen).

I typically need between 5 and 7 trades (quality setups that I’m in) to fully deploy my capital. At the moment I only have two positions, but there are still some setups close to triggering. If those setups trigger me into trades, that could increase my exposure. You can check out the prior watchlist here, and a new watchlist will be out by Sunday evening.

Here are the stock market health details.

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 is 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.

I have also started including 2 Canadian stock indexes for those in Canada. The Composite tracks larger companies, while the Venture tracks very small companies.

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

• The Nasdaq 100 has rallied to a new swing high. This is one of two elements of an uptrend: high swing highs and higher swing lows.
• The S&P 500, NYSE Composite, and Russell 2000 all have made higher swing lows and higher swing highs following the Feb. 24 low point. The Russell 2000 has been moving sideways since late January, yet it’s positive to see strong movement to the upside with the other indices.
• The TSX Composite (Canadian) remains strong. It is at all-time highs as it’s a commodity-stock heavy index, and commodities have done well.
• The Venture (Candian) has made a new swing high.

Overall, all the indices are exhibiting uptrending qualities at the moment. That’s enough to give myself the green light for making purchases if I see quality trade setups.

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 be swing trading individual stocks.

All combined, these indicators are improving and that means I’m willing to deploy capital to long swing trades.

• There was an upside follow-through day (FTD) on March 16. That was day seven of an attempted rally that started on March 8. FTDs are often one of the signals of a possible turn higher.
• 61% of S&P 500 stocks are above their 50-day moving average. 56% 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 downtrends for most stocks/indexes. We are now above 50.
• 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 no -2% drops since March 7. This is a good sign.
• The blue line is the cumulative NYSE Advance-Decline Line. The S&P 500 has moved above its highs from early March, and so has the AD line. The AD line is confirming the moves in the S&P 500.
• The columns of blue 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 above 80%). There is nothing important here at the moment.
• My ultimate indicator is my scan lists. It doesn’t matter how good conditions are. If I can’t find quality trade setups that trigger me into trades, then I’m not trading. So while everything is looking much better with the indices, until I run my scan this weekend and see what kind of opportunities are out there, I don’t know how much capital I’ll actually be deploying. I want to deploy some capital; the setups have to be there to do that.

What I’m Doing Right Now

I’ll be scanning again this weekend. Another watchlist will be published by Sunday evening. The prior watchlist had some good ones on it, especially on the Canadian side. I am primarily looking for contraction patterns in stocks that are near their highs, or cup and handle patterns as a stock price recovers from a decline (likely also near highs now).