Image Source: Unsplash

It's been an ugly week for the stock market. I have been on the sidelines, watching it unfold. I’m not taking swing trades on the long side currently. Here’s why.

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.

• There's not much to say here. Everything is ugly.
• The Nasdaq 100 just made new lows.
• The Russell 2000 made new lows a few days ago.
• The S&P 500 and NYSE Composite are right at lows.
• On the Canadian side, the Venture made new lows, and the TSX Composite has moved back to near the February lows.

Everything seems to be moving lower in unison. There is poor health across all the indices. Nowhere is particularly safe at the moment in the stock market. Even energy and precious metals stocks are down over the last month.

On that note, I was trading energy stocks and some precious metal stocks over the last few months even while the stock indices were weak. That’s because those stocks were still acting strong. And they may still act strong going forward. Yet sectors that rally in the face of major market declines usually do so for a limited time.

Oil stocks have rallied following stock market peaks before - and did so for several months before crashing down themselves. The further energy stocks diverge from the overall market, the less I want to buy them.

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.

Currently, all the indicators signal poor health, which tells me to avoid buying stocks at the moment.

• 27% of S&P 500 stocks are above their respective 50-day moving averages. 24% 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 respective 50-day averages. When this indicator is below 50%, it tends to signal sideways movement or a downtrend for most stocks/indexes. We are currently seeing the indicator at under 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 three 2% or greater drops since April 22.
• The blue line is the cumulative NYSE Advance-Decline Line. It is currently moving down with the S&P 500.
• The columns of blue are the NYSE up volume divided NYSE total volume. This is an indicator of buying and selling enthusiasm. Levels below 10% and above 90% are important (or back-to-back days above 80%). There is nothing important here at the moment.
• The ultimate indicator is how many quality setups there are and how trades are working. There are some setups out there, but most of them are falling along with everything.

What I’m Doing Right Now

I am not swing trading stocks on the long side. If I see a short trade I may take it, but I mainly focus on long trades when the conditions are right.

I am day trading the EUR/USD currency pair. That’s about it. The pair has lots of movement and potential, and it’s something I can trade every day at the same time. I’m all about efficiency at the moment (golf season has started, which takes up much of my time), and not having to do homework on what to trade.