Intermediate term breadth is showing a divergence while short term breadth is extended and pointing towards a pullback.
Click to enlarge the chart…
The gray histogram is a measure of the number of stocks in an uptrend while the red line is the number of stocks trading above their 5 day moving averages.
Note the divergence shown on the gray histogram. The red line is nearing historic high levels and is due for a dip southward.
1. Why is that divergence bearish? I would think that if the number of stocks in an uptrend is increasing that the number of stocks trading above the 5 dma would follow, no?
2. What are the parameters for “uptrend”?
3. I’m having a hard time seeing the predictive value of such a short-term moving average. For example, did this help forewarn of the correction in late April? Perhaps I’m just not seeing the correlations…
Thanks for posting. Interesting chart.
Skogie,
1. The divergence is bearish since the number of stocks in an uptrend is approximately 75% of what it was when SPY was at a similar levels as today’s close.
2. Parameters for uptrend is proprietary. Sorry. I have to keep a few things for myself 😉
3. Re: Predictive value of short term moving avg. Because the avg. is so short term, there is no way a majority of stocks can trade above it for very long. It is great at predicting short term weakness. Enlarge the chart and look at April. The number of stocks trading above the 5 absolutely nailed, to the day, the correction in late April.
Thanks for the explanations.
Nice, Wood. Good work. Any read on SLW yet?
Thanks! Not yet on SLW. It hasn’t pulled back far enough.
Hybrid showing this too