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The stock market health is decent; not great, but not bad. It’s a mixed bag in terms of trading performance, with some stocks breaking out and then failing to move up, and then the odd one continuing to run higher. The health indicators are neutral, but not bearish. I’m still willing to allocate capital to quality trade setups if they arise, yet the lack of quality setups is limiting how much capital I deploy.

Last week there was a huge stock watchlist, but not a lot of those stocks ended up producing quality setups. As conditions improve, more quality setups occur, and more trades start working - and then I will get more aggressive. 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 US indexes are moving together, currently in a pullback after a sharp rise. The move higher in the S&P 500 and Nasdaq 100 were strong enough to potentially reverse the downtrend. Therefore, I am viewing the current drop as a pullback within a new uptrend.
• The Russell 2000 is still pretty weak. That isn’t ideal. It is stuck moving sideways again.
• The TSX Composite (Canadian) remains strong. It is near 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, the indices are mixed, but they are still exhibiting uptrend qualities for the most part after that strong run higher. The indexes are in decent shape overall, but not great.

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 neutral. Or in other words, they aren’t bearish, but they aren’t bullish either. This tells me to take some quality trade setups if I see them. And if I don’t see much, that’s alright too. I’m not going to push it.

• There was an upside follow-through day (FTD) on March 16. That was day seven of an attempted rally that started on March 8. Follow-through days are often one of the signals of a possible turn higher.
• 55% of S&P 500 stocks are above their respective 50-day moving averages. 44% 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 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. Still a little volatile, but improving.
• The blue line is the cumulative NYSE Advance-Decline Line. Based on the Feb. 9 swing high, the AD line is lagging. The S&P 500 had moved above its Feb. 9 swing high yet the AD line didn’t.
• 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 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. Despite a big watchlist last week, I am not finding a lot of trades I want to buy. And trades I have taken recently produced a bit of profit overall, but nothing to get excited about. So in this regard, conditions are neutral once again.

What I’m Doing Right Now

I’ll be scanning again this weekend. The stock watchlist will be published by Sunday evening. The prior watchlist still has some trades setting up (they will be included on the new list). 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).