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SPX stocks mostly trade above their 200-day moving average

The stock market has shown an impressive performance so far this year, as can be seen solely from the level of the S&P 500 Index (SPX). More impressive, however, is the proportion of stocks participating in the rally. The chart below takes into account the current SPX stocks and shows the percentage trading above their 200-day moving average. It recently exceeded 95% for the first time since 2013. It is usually considered a bullish sign when the latitude is high during a rally, but can it be too high? Maybe we can determine if there is a point of exhaustion. I will also look at the data width a few more times.

Graphic 1

Go forward with the index

I always expect investors to ask this question, “What happens next?” The best I can do is show what happened in the past. The tables below show how the SPX performed on various readings of the percentage of stocks above their 200-day moving average. Right now, over 95% of stocks are above this moving average, so the current value is on the last row I put in bold in the table. The next six months tend to be weaker. The average return was 1.9% and the positive rate of 57% is the worst of all brackets. However, next year returns tend to be much better. The S&P 500 achieved an average return of 8.7% over the next 12 months, with a remarkable 97% of returns being positive. This indicates a potential short-term weakness with longer-term strength.

Graphic 2

Here is a 2000 SPX chart showing the number of times the percentage of stocks hit 90% above their 200-day moving average. Before 2020, there has been no signal since 2013 despite the strength of the market. The graph shows many signals ahead of some short-term pullbacks that are in line with the numbers above.

Graphic 3

This next graph really caught my eye. It’s a graph that shows where the average inventory is relative to its 200-day moving average. The average stock in the S&P 500 is about 20% above the moving average. This is the highest level since late 2009, after stocks rebounded from their lows in the financial crisis. With that in mind, stocks now rebounding from the Covid-19 crash look very similar to when they rebounded after the financial crisis. Hopefully this means we are in the early stages of another decade long bull market.

Chart 4

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