After such an epic run, I thought that tonight I’d fine some evidence of this run being extended, in terms of the number of stocks above their 50 and 200 day moving averages. In fact, that is not the case.
First, the markets have gone abnormal. I would not short here, with SPY well above its upper Bollinger Band (50,2). That being said, let’s look at a popular measure of market breadth, the percentage of stocks trading above their 50 and 200 day moving averages.
In order to calculate this, I used all major exchange listed stocks.
As seen in the graph, the number of stocks above the 50 day average is 75.07%. While this is high, the market has seen this level many times, and instead of a grand pullback, it has typically led to moderation or consolidation.
Instead of looking for a pullback right here, we should monitor this metric. If we see the percentage of stocks trading above their 50 day moving averages begin to fall as the market continues to rise, we might look for a pullback. At this point, consolidation seems more likely. Note though that this indicator works better at calling bottoms than tops.
The percentage of stocks trading above their 200 day moving averages is consistent with markets coming off of a bottom or a correction. If this metric can climb to 70%, which is consistent with levels reached during typical bull runs, the market will be significantly higher than where it closed today.
Thank you Mr. Shedder as always for such interesting research. May I ask which tool you use to get this chart and breadth data?
Amibroker with data from Norgate Premium Data.
The actions the Europeans describe cannot cure the crisis. Its honestly not even going to delay it by a full year.
They need currency creation, they certainly won’t get what they hope out if austerity in trade deficit nations.
Ignace shall prevail
Someone’s creating currency, or whyever else would the dollar be dropping like a rock on my Spock?
This is stealth QE 3.
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But we doesnt create currency and put it into the economy, Jake.
Stealth qe could well be occurring.
Is it QE, or just massive unwind of dollar long/Short Euro trades? Me think the latter.
Why not just use the McClellan Oscillator to make the same analysis?
McClellan Oscillator is completely different. It uses advancers and decliners, not percentage of stocks above a moving average. It is closer to the High Low Logic Index that I wrote about earlier this week.
Did you watch the game last night?
best. game. ever.
Of course I did!
Congrats to your Cardinals! They played great and got hot at the right time of the season. Hard to believe the Rangers got two blown saves in the same game in game 6! Maybe my Phillies can get some better hitters next year. Sigh.