Stock Market Health Update for Week of August 1 – TradeThatSwing

The market health indicators are in favorable territory for swing trading on the long side. All the major indices are moving up in unison. Recent watchlist stocks have been acting favorably, with some reaching targets quickly.

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 – the charts I personally use.

US and Canadian stock indices analysis for aug. 1

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 discussed below 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 are trying to improve.

S&P 500 analysis with market health indicators in favorable territory aug 1
  • 77% of S&P 500 stocks are above their 50-day moving average. 68% 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 a downtrend for most stocks/indexes. Excellent.
  • Volume was relevant on June 24 when it increased with the 3% price rise to create a FTD.
  • 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. No big drops in nearly a month. Pretty good, but ideally the daily movements should stay within the bands. That is more typical of uptrending behavior. Still volatile, but improving.
  • The blue line is the cumulative NYSE Advance-Decline Line. I want this line to start making higher swing highs and lows. It is 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 signals that the S&P 500 is likely to move above its June highs as well. Good condition.
  • The blue columns are NYSE up volume divided by NYSE total volume. It tracks buying and selling enthusiasm. There was a 91% upside day on July 19. Bullish.
    • The old way of creating this indicator on TradingView no longer seems accurate. I created an indicator called UpVol/TVol NYSE Lowry Upside Days. You can view it here, or search “Lowry” under Indicator.
  • The ultimate indicator is how many quality setups there are and how trades are working. I’ve been creating watchlists 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 work lets me know conditions are favorable for deploying capital.

My entire method of swing trading stocks is covered in the Complete Method Stock Swing Trading Course. Now is a great time to review the material and prepare for the opportunities that are unfolding.

Sectors on the Move

Over the last month, Consumer Cyclicals, Technology, and Industrials are 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 always day trading. Lots of movement and opportunity day trading stocks, but I primarily day trade the EURUSD every morning for 1-2 hours. Lots of opportunities there as well.

By Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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