This Market Regime Page is updated every Wednesday.
An alert will be sent should conditions change between updates
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: Bullish since June 10th
- 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)
- 10-yr Yield Goes Everywhere and Nowhere
Last Piece Missing as Divergences Form
Despite bullish breadth signals within the Nasdaq 100, the weight of the evidence remains bearish for the stock market as a whole. Nasdaq 100 stocks are leading, S&P 500 stocks are treading water, mid-caps are struggling and small-caps are lagging.
The market broke down in early-mid March when the majority of market regime indicators turned bearish. After a capitulation plunge into early April, stocks surged into mid May. There was a Zweig Breadth Thrust on April 24th and 5/200 1% Filter cross for SPY on May 15th.
The long-term breadth indicators are the last piece of the bullish puzzle. These are the trend and leadership indicators that measure performance within the indexes (Nasdaq 100, S&P 500, S&P 1500). Nasdaq 100 stocks are performing well, but only 49% of S&P 500 stocks are above their 200-day SMAs. 49% is NOT a bull market number. Only 39% of S&P 1500 stocks are above their 200-day SMAs. Clearly, more than half empty.
Breadth weakened from mid May to mid June. SPY and QQQ exceeded their May highs, but the S&P 500 EW ETF did not. In addition, a small bearish divergence formed the last few weeks as fewer stocks participated in the June advance. The chart below shows SPX %Above 200-day SMA failing to exceed 60% in mid May and forming a lower high in mid June. Weakening under the surface foreshadow a pullback.
Technical Event Timeline
- March 13th – Bearish Long-term Breadth and Trend Indicators
- April 4th – Capitulation [1]
- April 24th – Bullish Zweig Breadth Thrust [2]
- April 29th – Bullish Thrust S&P 1500 %Above 20-day SMA [3]
- May 12th – SPY/QQQ Gap above 200-day SMAs
- May 15th – Bullish Cross SPY 5/200 day %Difference > 1% [4]
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
All five indicators remain bearish. Short-term, a bearish divergence formed in SPX %Above 200-day SMA and SPX %Above 100-day SMA. SPY formed a higher high from May to June and these two indicators formed lower highs (pink lines). These lower highs show that fewer stocks took part when SPY pushed to new highs. SPX %Above 200-day SMA moved back below 50% on Tuesday, which means the cup is half full (at best) or half empty (at worst). Either way, 49% is not a bull market number.
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: Bullish since June 10th
No change. Four of the five indicators are bullish as Nasdaq 100 stocks continue to lead the market. Most recently, QQQ closed above the upper Bollinger Band for a trend signal and $NDX %Above 150-day broke above 70%. Previously, NDX %Above 200-day SMA ($NDXA200R) exceeded 60% on May 12th and Nasdaq 100 High-Low% ($NDXHLP) hit +10% on May 27th.
Active Signals – 4 Bullish and 1 Bearish:
- Bullish: QQQ broke the upper Bollinger Band (125,1) on June 10th
- Bullish: NDX %Above 200-day broke above 60% on May 13th
- Bullish: NDX %Above 150-day broke above 70% on June 10th
- Bearish: NDX %Above 100-day broke below 20% on April 4th
- Bullish: NDX High-Low Percent Hit +10% on May 27th.
RSP and S&P 1500 Breadth: Bearish since March 11th.
No change. 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
No change. The chart below shows SPY, the Junk Bond Spread ($$HYIOAS) and the BBB Bond Spread ($$BBBOAS). Yield spreads narrowed as stocks advanced from early April to June. The Junk Spread is back to its 200-day SMA and the BBB spread is below its 200-day SMA. This narrowing shows confidence in the credit markets and is bullish for stocks. The pink lines mark levels to watch for an upturn (widening) that would be negative for stocks (3.5 on the Junk Spread and 1.25 on the BBB spread).
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)
No change. 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
10-yr Yield Goes Everywhere and Nowhere
The 10-yr Treasury Yield ($UST10Y) is in a long-term uptrend since the late December breakout, but has gone nowhere since the early April breakout and is range bound the last two years (3.6 to 5 percent). After the December 2024 breakout, the yield retraced around 61.8% with a correction into March and broke out at 4.4 in April. $UST10Y is currently at 4.39% and has nothing to show since the early April breakout. Nevertheless, I still see an upward bias since April with support at 4.30%. A move below this level would break support and negate the April breakout. Short-term, a falling wedge formed the last four weeks and a breakout at 4.53 would be bullish.
The 10-yr Treasury Yield the most important benchmark for long-term rates and mortgages. Several factors influence long-term Treasury yields: 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 expectations fall.