Stock Market Health Update for Week of July 25 – TradeThatSwing

Major US and Canadian stock indices are a little higher this week than last, but overall not much has changed. We are still in an attempted rally within a longer-term downtrend. The turn higher has not been fully confirmed. YET, more market health indicators are giving the thumbs up that a bottom could be in.

On the flip side, while I happened to pick one winning trade to be in a couple of weeks back, a lot of the stocks I have been watching haven’t acted great. So that tells me conditions are still a little tough out there.

I’m still only deploying a portion of my capital until I see more trades working and potential/actual wins. Once an uptrend starts, there will be plenty of opportunities over the next year or two, so there’s no reason to get aggressive too early.

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.

Those are regression channels on most of the charts – they create a channel of “best fit” to the price action, helping to highlight the overall trend.

US and Canadian stock indices as of July 24

All the indices are in overall downtrends. The US indices are trying to push higher the last month. The Canadian indices are weaker as oil and gold stocks have sunk recently.

The FTDs 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.

It is still very early in this uptrend, so I am not deploying all my capital. But seeing all the US indices pushing higher together is encouraging.

We are not out of the woods yet, but hopefully getting there. The market health indicators discussed below are also improving.

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 chart with market health indicators as of July 24
  • 55% of S&P 500 stocks are above their 50-day moving average. 55% 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. Good, but at minimum.
  • 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 just starting to do that. That’s good to see, a little more upside and this will get a thumbs up too. Right now, it is neutral to bullish.
  • 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 couple of weeks, and a few trades have worked but many haven’t. This tells me it is still tough conditions out there. I only deploy more capital as I see trades working.

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 get ready for the next opportunities which are coming our way. Markets always turn around, and when they do, you want to be armed with ways to profit from it.

Sectors on the Move

Over the last week and month, Consumer Cyclicals, Technology, and Industrials are the top sectors. Healthcare also hanging in there, as the top performer over the last 3 months and ranked 4th in the last month. Top sectors are always changing, but can provide ideas on where to look for trades.

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.

sector performance over various time frames as of July 24

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 because that shows better market health.

I will also be monitoring the stocks on recent watchlists, because even though I may not be in those trades, those were stocks that were acting strongly up till recently so I want to see how they act going forward. If they continue to act strong, that tells me things are working, if they don’t, it tells me to remain cautious.

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.

Take the time to refine your strategies while swing trading is slow.

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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