Market View – Lots of Room to the Upside

  • Posted by on November 22nd, 2017 at 7:31 am

I know the prevailing view is that the market is going to crash. After weeks, months, years or however you arr measuring, this end has to come soon right? High yield is staggering. Breadth is …… whatever. The only thing that matter to where equity prices are headed is equity price action. Equity prices have taken a new leg higher with new all-time highs in the S&P 500, Nasdaq 100 and Russell 2000 Tuesday. Is there more ahead or is this a blow off top? I don’t know, but there is some evidence of a lot of room to the upside.

The chart below shows the percentage of stocks that are above their 200 day SMA. The 200 day SMA is a barometer of bullishness or bearishness in the market place. Above the 200 day SMA is a bullish indicator and below it is a bearish signal. So what does it say about the broad market today? There is a lot of room to move higher still.

The chart shows a top and resistance at the 95 level. It also shows the low from the Financial Crisis under 5%. But the majority of the time the percentage above the 200 day SMA is between 45 and 95. Since the move higher in early 2016, it has stayed between 60 and 80. Although this is well above 50%, it is far from the peaks that have led to corrections in the past. From this measure of breadth, the market can keep going higher for a while.