S&P 500 Stocks - 92.45% Are Above Their 50 Day Moving Average

S&P 500 Stocks - Keep Rallying

The stock market is extremely overbought in the short term. It’s so overbought that the 0.15% rally in the S&P 500 on Tuesday is impressive. 

Nasdaq was up 0.19% and the Russell 2000 was up 0.33%. S&P 500 is up 10.89% for the year. 

Even though we have 10 months left in the year, an entire year’s worth of gains have come. The CNN fear and greed index is at 68 which signals greed. That’s down 2 points from Friday even though stocks were up.

The best 2 sectors were materials and utilities. Utilities is the best performing sector in the past 12 months, principally because of the rocky Q4. 

Consumer staples sector was helped by Wal-Mart as the sector increased by 0.5%. The only 2 down sectors were healthcare and industrials which fell 0.25% and 0.07%.

S&P 500 Stocks - 92% Above 50 Day Moving Average

As you can see from the chart below, 92.45% of stocks in the S&P 500 are above their 50 day moving average. 

Since 1990, the median gains 3 months, 6 months, and 12 months forward are 5%, 9%, and 16%. The median drawdown after this signal was 1%. 

This is an unusually positive analysis which counters the bearish argument that this overbought market can’t maintain its momentum and hit new highs this year.

If you review each time 90% of stocks were above their 50 day moving average since 1968, stocks increased in the next 63 days 16 times and only fell 2 times. 

That’s another positive spin on this extremely strong market breadth. The chart below shows a negative spin as it shows the market is more overbought than in the bear market rallies prior to the past 2 recessions. 

Alternatively, that could mean this breadth implies a recession isn’t coming. If you do think a recession is coming, this is an amazing time to short stocks. I don’t see any indicators that support that hypothesis.  

(Click on image to enlarge)

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