What’s the picture and what does it mean for our future short-term trades? Let’s take a peek inside:
We’re seeing the S&P 500 (top) with two measures of Breadth:
The Percentage of Stocks (in the S&P 500) above their 50 day Simple Moving Average
and the % of Stocks above their 200 day all-important Simple Moving Average
When these internal indicators were strong (showing strength above 75%), it suggested broad strength and support of the market, indicating that the near-term future would likely be bullish.
Indeed the future WAS bullish as the S&P 500 continued the strong uptrend, peaking just shy of 2,500.
Internals were slightly weaker (less stocks were trading above their 50 day or 200 day SMA) at the July high which set in motion a cautious play and indeed stock prices did trade lower in a retracement (sell-swing) through August.
As stocks make ANOTHER run-up toward 2,500, internals are not keeping pace.
At the moment – as price trades just shy of the 2,480 high:
52.5% of stocks are above their 50 day SMA
60.5% of stocks are above their 200 day SMA
While not catastrophic, it’s still a sign of deterioration or specifically that more stocks are now trading at or beneath these critical moving averages.
That’s not good if you’re a stock market bull wanting higher prices in the near future.
It’s a sign of caution that “not all is well” with the rally and that we should be more cautious – not outright bearish yet – for additional gains in the future.
Draw up your stop-losses and plan for a possible larger pullback.
Of course, if the situation changes – more stocks regain (trade back above) their averages, then the bulls will have survived another bearish data point in this ongoing, unstopping bull market.
The SPDR S&P 500 ETF Trust (NYSE:SPY) fell $0.47 (-0.19%) in premarket trading Friday. Year-to-date, SPY has gained 11.46%.
This article is brought to you courtesy of AfraidToTrade.com.