The percentage of stocks in the S&P 500, S&P 400, and S&P 600 with their 50-day moving average above their 200-day moving average have declined to levels not seen since the 2022 market downturn.
Here’s the chart:
Let's break down what the chart shows:
The black line in the top panel shows the price of the S&P 500 index.
The blue line in the bottom panel represents the percentage of S&P 500 stocks with a 50-day moving average greater than their 200-day moving average.
The gray line in the bottom panel represents the percentage of S&P 400 stocks with a 50-day moving average greater than their 200-day moving average.
The red line in the bottom panel represents the percentage of S&P 600 stocks with a 50-day moving average greater than their 200-day moving average.
The Takeaway: When we look beneath the surface, it's evident that most stocks are in downtrends.
Only 38% of S&P 500 stocks are experiencing uptrends, while just 29% of S&P 400 stocks and a mere 22% of S&P 600 stocks are in uptrends.
The trends of these breadth readings rolled over in December 2023 and have been declining ever since, and have now fallen back to levels not seen since the 2022 bear market.
When the majority of stocks are in downtrends, this is normal behavior when the overall market is in a bear market. This persistent weakness in the market could lead to further downside action if the bulls do not address this issue soon.
Currently, there are no indications that these downtrends are reversing, as the weight of the evidence remains in favor of the bears.
Therefore, it's hard for me to be optimistic about the market at this time.
Is this the right environment for allocating capital, or should we wait for bullish data points that shift the weight of the evidence?
Grant Hawkridge | Chief Aussie Operator, All Star Charts
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