One Form of Breadth as an Indicator
- Posted by Greg Harmon
- on June 28th, 2012
One more indicator to watch as you go back and forth about an uptrend or a downtrend is the percentage of stocks trading above their 200 Day Simple Moving Average (SMA). The chart below shows this indicator on a weekly basis over the last 9 years. The purple area is the S&P 500. There are many things to take away from this chart. First, even in the rising trend of the S&P 500 up to 2007, the S&P 500 did not have a sizable pullback until the the percentage of stocks over the 200 day SMA broke above 80. This is true of the latest pullback from late April as well. Next the bottom has been reached after the percentage of stocks above their 200 day SMA fell below 45%. The range to the downside has been a lot wider. Just a few weeks ago that percentage did break the 45% level to the downside and has bounced slightly. Is the downside over? Maybe not. What has also happened in each of the bottoms is that the Relative Strength Index (RSI) has reached the low 30s. If this turns out to be a bottom then it will be at the highest RSI over that entire period. So this tool is signaling a potential bottom, but not definitively. Another confusing signal. Look for a RSI to move over 50 and the percentage to move back over 65 to confirm a bigger move higher.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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