OK listen up: This is important. SentimenTrader.com analysts report that virtually all S&P 500 (SPX) members are trading above their 10-day moving averages at present, and more than 90% of the index’s stocks have held above that average for a week straight, asserts Jon Markman, tech sector expert and editor of Strategic Advantage.
This is known as a “breadth thrust” in the technical analysis world and is among the few signals with a very reliable positive forward outcome. ST reports that similar thrusts and streaks preceded gains for the S&P 500 over the next six months almost without exception.
This streak started in early December coming out of the November setbacks, as buying interest across stocks was broad and urgent. More than 80% of volume on the NYSE flowed into advancing securities, triggering a positive and rare form of breadth thrust.
Moreover, the percentage of S&P 500 member stocks trading above their 10-day moving averages cycled from only 25% on December 20 to more than 90% by last week, the analysts found.
SentimenTrader reports that their backtest engine shows that since 1998, the S&P 500 performed well after more than 90% of its stocks traded above their 10-day averages, preceding a positive one-year return after 187 out of 193 signals.
More specifically, when the percentage of S&P 500 stocks has cycled from under 25% to over 90%, the benchmark index has risen with a “nearly unblemished record” over the next six to 12 months. The average two-month return has been 5.5%, while the average six-month return is 13% and the average 12-month return was 18.1%, which is a ton. hen this triggered on Jan. 3, 2013, the index rose 25% in the next year.
Another impressive streak of note: By Dec. 27 last week, more than 90% of stocks were trading above their 10-day averages, and the number hasn't dropped below 90% since then, according to SentimenTrader data. This five-day streak is tied for the fourth longest since 1950. The analysts' report that after other times when the S&P 500 went five straight days with more than 90% of its members above their 10-day averages, the index continued to gain in the months ahead with few exceptions. The average six-month gain has been 13.2%, which is a lot. The last signal was June 3, 2020, and the S&P 500 rose 17.3% in the next six months.
Bottom line, according to the analysts: “There are definite concerns regarding valuations, bubble-like behavior in various assets, and a looming change in monetary policy. So far, equity investors don't seem to care. When we see sustained thrusts in short-term positive trends among members of the S&P 500, as we did at the end of December, it has preceded further gains almost without exception.”
Take note.
