The next report will be on Thursday, February 6th.
Weak Rebound for Percent of Stocks above their 200-day SMAs
The weight of the evidence remains bullish for stocks, but I am concerned because a large percentage of stocks are in long-term downtrends. The percentage of stocks above their 200-day SMAs tells us how many stocks are in long-term uptrends. Stocks that are not in long-term uptrends are in long-term downtrends (below their 200-day SMAs). Currently, around 60% of S&P 500 stocks are above their 200-day SMAs, which means 40% are below. 40% is not a small number.
The chart below shows the %Above 200-day SMA indicators for the S&P 500, Nasdaq 100, S&P MidCap 400 and S&P SmallCap 600. These indicators were hit hard from early December to early January and then rebounded into late January. The rebound, however, was not that strong as these indicators did not get back above 65%. In other words, more than 35% of stocks in each index remained below their 200-day SMAs as the S&P 500 SPDR tagged a new high in late January.
Despite a seemingly weak rebound in these long-term breadth indicators, they remain net bullish and the cup is half full. Medium-term, I am watching the 50% levels (blue lines). A move below 50% would show more stocks breaking their 200-day SMAs and this would likely lead to a correction in the broader market. We are talking a 5-8 percent pullback in the S&P 500. Long-term bearish signals trigger when these indicators break below 40%. I will cross that bridge when and if it gets here.
Market Regime Report
The long-term trends are up for the major index ETFs and their respective breadth indicators are net bullish. Long-term breadth indicators deteriorated sharply in December and rebounded in January, but the rebounds were not that strong. Around 60% of S&P 500 stocks are above their 200-day SMAs, which means 40% are below their 200-day SMAs. A large number of stocks are in long-term downtrends. I am watching the 50% levels for the %Above 200-day SMA and %Above 150-day SMA indicators. A break below 50% would show more stocks moving into long-term downtrends and this would be negative. Such a move would not turn the weight of the evidence bearish, but it would argue for a correction or pullback. Perhaps a 5-8 percent decline in SPY.
– The weight of the evidence remains bullish for stocks.
– SPY, QQQ and RSP are in long-term uptrends (Bollinger Band signals)
– S&P 500 Breadth: Net Bullish since December 1, 2023.
– Nasdaq 100 Breadth: Net Bullish since February 1, 2023.
– S&P 1500 Breadth: Net Bullish since December 5, 2023.
– The Junk bond spread remains near its lows (no stress in credit markets).
– The Fed went on hold, but has yet to turn hawkish.
– The 10-yr Yield formed a bullish wedge on the daily chart.
PDF Files are best viewed using the Adobe Acrobat browser plugin.
If viewing through a browser, right click on charts to open in a new tab or window.
Use CRTL and the Plus or Minus keys (+ -) to zoom. 125% works best for me.
Working with PDF Files
Before linking to the report, here is a brief explanation for the shift to PDF. Working with ChartLists at StockCharts and PDF files is an effective and efficient manner to track and analyze an ETF group. It saves me an enormous amount of “posting” time. This is the time required to create the web page, copy/paste the text for each section and upload the chart image. With a ChartList, I simply print the charts and analysis to one PDF. This also serves as a good archive.
The charts in the PDF files are linked to a corresponding SharpChart at StockCharts. There are two ways to open the PDF file: through your browser or through an application like Adobe Acrobat. When viewing the PDF through your browser, the best way to open a chart is to right click on the image and choose open in new tab/window. When viewing the PDF through Acrobat, you can open a chart in your default browser by simply clicking on the image.
The example below is a screen shot from the PDF.
