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Market Regime – ZBT and 5/200 Cross Bullish – Long-term Breadth Mixed

Posted By Arthur Hill, CMT On In Archive | No Comments

The next report will be on Thursday, May 29th.

Report Headlines

  • Zweig Breadth Thrust Remains Active (bullish)
  • 5/200 1% Cross Remains Active (bullish)
  • SPY and S&P 500 Breadth: Net Bearish since March 13th
  • QQQ  and Nasdaq 100 Breadth: Bearish since March 31st
  • RSP and S&P 1500 Breadth: Bearish since March 11th.
  • Yield Spreads Fall back to March Levels
  • 3-month Yield Remains Flat (Fed on Hold)
  • Breakdown for TLT and Breakout for 10-yr Yield

Improvements Continue with One More Hurdle

The broad market environment is mixed, at best, and still bearish at worst. Keep in mind that SPY and QQQ are part of the broad market environment, but they are large-cap driven ETFs that do not always reflect conditions under the surface. Breadth indicators reflect conditions for the average stock.   

Just over 50% of S&P 500 stocks are above their 150 and 200 day SMAs. This suggests that the cup is half full, but we need to see the VAST majority of stocks above their long-term moving averages to call this a bull market. Bull markets are like the tide, and a rising tide lifts all boats (stocks).

I have yet to see enough evidence to suggest a bull market capable of lifting all boats. This means I am selective with stocks and equity ETFs. In addition, alternative assets, such as commodities and bitcoin remain in the mix.

The technical time line shows a steady improvement since the Zweig Breadth Thrust on April 24th. The long-term trend and breadth indicators are the last hurdle. I am mostly focused on the 5/200 cross for SPY right now. This signal is bullish until the 5-day moves more than 1% below the 200-day SMA.

Technical Event Timeline

Zweig Breadth Thrust Remains Active

A Zweig Breadth Thrust triggered on April 24th and SPY also moved above the lower Keltner line (65,2,65). As laid out in this strategy report [2], the breadth thrust is bullish as long as SPY holds the lower Keltner line. Five consecutive closes below the lower Keltner line would negate the Zweig Breadth Thrust.  

5/200 1% Cross Remains Active (bullish)

The chart below show SPY with the 5-day SMA, the 200-day SMA and the Percentage difference between the two in the indicator window (Percent above MA(5,200,1). A bullish signal triggers when Percent above MA crosses above +1% (blue lines) and the bearish signal triggers with a cross below -1% (pink lines). As with all trend-following indicators and moving average crosses, there will be whipsaws (bad signals) and extended trends (good signals). The 5-day moved more than 1% above the 200-day SMA for a bullish trend signal on May 15th. This signal remains valid until the 5-day is more than 1% below the 200-day SMA. See this research report [4] on the 5/200 day SMA cross for SPY, QQQ, MDY and IJR.

This indicator is one of eleven in the TIP Indicator Edge plugin for StockCharts ACP. [5]

SPY and S&P 500 Breadth: Net Bearish since March 13th

SPY and S&P 500 breadth turned net bearish on March 13th. Breadth indicators became extremely oversold in early April and then rebounded with a vengeance into mid May as SPX %Above 200-day SMA came close to 60%. A cross above 60% is needed to turn bullish. This would mean the vast majority of S&P 500 stocks are above their 200-day SMAs (long-term uptrends).  

Active Signals: Bears 5 – Bulls 0

  • Bearish: SPY broke the lower Bollinger Band (125,1) on March 10th
  • Bearish: SPX %Above 200-day broke below 40% on March 12th
  • Bearish: SPX %Above 150-day broke below 30% on March 13th
  • Bearish: SPX %Above 100-day broke below 20% on April 4th
  • Bearish: SPX High-Low Percent Hit -10% on April 3rd

About the Major index ETFs and Breadth Signals

The top window on each breadth chart shows the corresponding major index ETF with Bollinger Bands (125,1). An uptrend signals when the ETF breaks above the upper Bollinger Band and a downtrend signals with a break below the lower band. The index ETFs are the S&P 500 SPDR (SPY), Nasdaq 100 ETF (QQQ) and S&P 500 EW ETF (RSP).

Each index has four breadth indicators. SPY uses S&P 500 breadth, QQQ uses Nasdaq 100 breadth and RSP uses S&P 1500 breadth.

  • The percentage of stocks above the 200-day SMA triggers bullish with a move above 60% and bearish with a move below 40%.
  • The percentage of stocks above their 150-day SMAs triggers bullish with a move above 70% and bearish with a move below 30%.
  • The percentage of stocks above their 100-day SMAs triggers bullish with a move above 80% and bearish with a move below 20%.
  • High-Low Percent triggers bullish with a move above +10% and bearish with a move below -10%. High-Low Percent is the percentage of stocks making 52-week highs less the percentage making 52-week lows.

These bullish/bearish signal thresholds are designed to identify significant changes in the stock market (bull market or bear market). As trend-following signals, they will lag and there will be whipsaws. Long-term, these signals keep us on the right side of the market. The idea is to be invested during bull markets (risk-on) and in cash during bear markets (risk-off).

QQQ and Nasdaq 100 Breadth: Bearish since March 31st

QQQ and Nasdaq 100 breadth turned net bearish on March 31st and three of the five indicators are currently bearish. Nasdaq 100 stocks are stronger than S&P 500 stocks because there are now two bullish signals. NDX %Above 200-day SMA ($NDXA200R) exceeded 60% May 12th and Nasdaq 100 High-Low% ($NDXHLP) hit +10% on May 27th. One more flip and the group would turn the group net bullish.

Active Signals – 3 Bearish and 2 Bullish:

  • Bearish: QQQ broke the lower Bollinger Band (125,1) on March 10th
  • Bullish: NDX %Above 200-day broke above 60% on May 13th
  • Bearish: NDX %Above 150-day broke below 30% on April 4th
  • Bearish: NDX %Above 150-day broke below 30% on April 4th
  • Bullish: NDX High-Low Percent Hit +10% on May 27th.

RSP and S&P 1500 Breadth: Bearish since March 11th.

RSP and S&P 1500 breadth turned net bearish on March 11th and all five indicators are currently bearish. S&P 1500 breadth remains the weakest of the three because fewer than 50% of component stocks are above their 200 and 150 day SMAs. Mid-caps and small-caps are lagging and weighing within the S&P 1500.

Active Signals – 5 Bearish and 0 Bullish:

  • Bearish: RSP broke the lower Bollinger Band (125,1) on March 4th
  • Bearish: S&P 1500 %Above 200-day broke below 40% on March 11th
  • Bearish: S&P 1500 %Above 150-day broke below 30% on March 11th
  • Bearish: S&P 1500 %Above 100-day broke below 20% on March 11th
  • Bearish: S&P 1500 High-Low Percent broke below -10% on March 4th

Yield Spreads Fall back to March Levels

The chart below shows SPY, the Junk Bond Spread ($$HYIOAS) and the BBB Bond Spread ($$BBBOAS). Yield spreads narrowed as stocks surged and both spreads fell back to their March levels (pre Liberation day). They also fell back to their prior breakout levels and 200-day SMAs. Further narrowing below 3 for the Junk bond spread and 1.1 for the BBB spreads would show a return to “normal”. This would be bullish for stocks and most likely coincide with new highs in SPY and QQQ. The pink trendlines define the current narrowing. A break above these trendlines would show an upturn and increasing stress in the credit markets. This would be negative for stocks.  

The yield spread is the difference between the Junk Bond Yield or BBB Bond Yield and a comparable Treasury Bond Yield. Junk and BBB bonds represent risk assets, while Treasuries represent relative safe-havens. The spread is the risk premium for holding the riskier assets. Narrow/narrowing spreads show confidence and this is bullish for stocks. Wide/widening spreads show stress and this is negative for stocks.

3-month Yield Remains Flat (Fed on Hold)

The 3-month Treasury Yield ($UST3M) continues to trade with a tight range, signaling that the Fed is on hold. A breakout at 4.5% would argue for a more hawkish Fed, while a break below 4.2% would argue for a move dovish Fed.

The middle window shows the Fed Funds Target Rate ($$FEDTGT) falling from September to December as the Fed cut rates (dovish). This Fed Funds target rate flattened this year, but has yet to turn up, which means the Fed has yet to raise rates (officially change their stance).

Several factors influence short-term Treasury yields, but they are still closely aligned with Fed policy and often lead the Fed. This means the yield often peaks (troughs) and turns down (up) before the Fed starts to lower (raise) rates. We use the 3-month Treasury yield to identify current Fed policy and anticipate the next Fed move

Breakdown for TLT and Breakout for 10-yr Yield

There is no change with TLT, which remains in a downtrend. TLT broke rising wedge support in October, hit 52-week lows in December-January and then rebounded in the first quarter. A rising wedge retraced 50-61.8% of the Sept-Dec decline and TLT broke the wedge line with a sharp decline in early April. This breakdown remains in play (bearish). Re-evaluation resistance is set at 90.21 (pink line). The bottom window shows the PPO(5,40,0) in negative territory, which means the 5-week EMA is below the 40-week EMA (downtrend).

No change. The next chart shows the 10-yr Treasury Yield in the top window and the 30-yr Treasury Yield in the lower window. The 10yr Yield broke out of a large falling wedge in November-December, fell in the first quarter of 2025 and broke falling channel resistance with a surge in early April. There was a pullback into late April and then a move to 45 (4.5%) in May. The breakout remains in play and argues for higher rates. A close below 41 (4.1%) would break support and change this outlook. The bottom window shows the 30-yr Treasury Yield ($TYX) with similar characteristics and a move to 5% in May. Re-evaluation support is at 46 (4.6%).

Several factors influence long-term Treasury yields, including growth expectations, inflation expectations, government debt levels, tariffs and foreign bond holders. The 10-yr Treasury Yield typically falls when the economic outlook dims and/or inflation expectations rise. Conversely, the yield typically rises when the economic outlook is bright and/or inflation expectation fall.

Thanks for tuning in and have a great day!