What Breadth Says About the Current Market

What message does Breadth reveal to us right now during the holiday week?

Let’s take a look at our updated chart of stocks above their key moving averages – and what that means.

S&P 500 Daily Chart

In the chart above we’re seeing the S&P 500 Index through 2015 with two charts:

The Percent of Stocks above their 50 day – and then 200 day – Simple Moving Averages.

A stock above its 50 day SMA is considered bullish and that’s especially true about the longer-term 200 day SMA.

The graph just charts the percentage of all 500 stocks in the S&P 500 with respect to their moving averages.

As I’ve detailed repeatedly on the blog and to members in strategy reports, the lengthy divergence mid-2015 sent a huge warning sign that a likely bearish breakdown was likely (and that’s what occurred in August).

By the same logic, the Positive Divergence that occurred at the end of September forecast a likely bullish reversal.

Likewise, the market reversed when this indicator diverged positively.

At this point, we’re seeing a bearish tilt to the indicator as the market pulls back from the 2,100 high level.

Now, 26% of stocks in the S&P 500 are above their 50 day SMA while 36% are above their 200 day SMA.

Compare the levels achieved on the rally and the second retest of the 2,100 level.

We’d need to see improvement in these Breadth indicators to become very bullish on the market.

As we go into a historically bullish period – the end of the year and supposed “Santa Claus” rally – keep these indicators in mind which are tilting cautiously for us.

For more daily updates from Corey, visit his blog at Afraid to Trade.com.