Last week the stock market took a hit with a big drop on Tuesday and then some follow up selling into the end of the week.
Health indicators are again in poor health. I will continue to scan as conditions can change rapidly, although I am not taking any new positions at the moment.
I have some positions from before. Some have been stopped out, some are doing well and others are near exit levels. All in all, if we don’t start moving up relatively soon, I’ll be back in cash as current positions lag (all current positions are TATR strategies). But if we do get a bounce, I will still have some exposure to stocks that have held up very well despite the recent market weakness.
Here is a 5 minute summary video on the current state of the stock market.
How the market indices develop
I look at 4 different US indices because they each tell a different story about the overall health of the stock markets. The stock market is at its healthiest — and swing trading stocks on the long side are most profitable — when all of these indices 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 range of stocks of different sizes and industries
- Russell 2000 – Smaller companies
2 Canadian equity 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.
All indices had a tough week. From a price action perspective, the short-term downtrend that started in mid-August (part of a longer-term downtrend) is still in full effect, falling below the swing lows of early September.
Downtrends consist of lower swing highs and lower swing lows, and that’s what we have in US indices right now. Canadian indices are in the same boat but are currently still above previous September lows.
We need to start seeing some higher swing highs and lows for a bull case to be made.
State of market health indicators
The chart below shows the market health indicators that I track. They tell me how the stock market as a whole is doing and whether it’s a good time to swing individual stocks.
Market health indicators are bad.
- 24% of S&P 500 stocks are above their 50-day moving average. 31% of all US stocks are above their 50-day moving average. It’s generally much easier to trade profitably (on the long side) when more stocks are above their 50-day moving average. When this indicator is below 50%, it tends to be flat or down for most stocks/indices. Poor.
- Volume was relevant on June 24 as it surged as the price surged 3% to create a follow-through day (FTD). Big drops at high volume on August 26th and September 13th are what I call throw-up days. This often signals another short-term decline…which has already unfolded.
- 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 whenever they occur. A drop of more than 3% on September 13th. poor.
- The blue line is the sum NYSE advance-decline line. It moved above its early April high before the S&P 500 surged above its April high. This is a bullish divergence and signals that the S&P 500 is likely to hit the April high before making a new low. The indicator also remained above its September 6th level, while the S&P 500 recently fell below its September 6th level. Respectable.
- The blue columns are NYSE Up Volume divided by NYSE Total Volume. It tracks buying and selling enthusiasm. On September 9th there was a 90% upmove day (calculated manually, the indicator only provides an estimate). And a 93% loss day on September 6th. poor.
- The old way of creating this indicator on TradingView doesn’t seem accurate anymore. I created an indicator called UpVol/TVol NYSE Lowry Upside Days. You can view it here or search for “Lowry” under “Indicator”.
- The ultimate indicator is how many quality setups there are and how trades are performing. I have continued to take trades with reduced position sizes for the past few weeks. I didn’t take any new trades after Tuesday’s drop. I’ve had a few stop outs, some trades are doing reasonably well and others are flat or almost stopped out. Basically, my results are telling me what the market is saying: choppy and still a bit tough. Better to be cautious than aggressive.
My entire method of stock swing trading is covered in the Complete Method Stock Swing Trading course. Now is a good time to review the material and prepare for the opportunities that present themselves.
industries on the move
In the past week everything has faltered. Energy has held up best over the past week and month.
Over the past three months, the best performing (non-defensive) sectors have been consumer discretionary, industrials, health care and financials.
Sector performance powered by Finviz.
Scan as usual or run a scan with the additional criteria of only looking for stocks in specific sectors to reduce the number of stocks on your list and save on your scan time.
what i’m doing right now
I am not adding any new long swing trading positions at the moment. I will wait until conditions improve.
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By Cory Mitchell, CMT
Disclaimer: Nothing in this article constitutes personal investment advice or advice to buy or sell. Trading is risky and can result in significant losses, even greater than those deposited when using leverage.