Hey Market Pilot,
I have been discussing recently how the S&P 500 and the NASDAQ have been trending up relentlessly, but underneath the surface the breadth was poor and many stocks were declining. The indexes I have been using to help demonstrate that poor breadth have been the Russell 2000 and the IBD 50 (FFTY) since they were basically going sideways for the last six months. Now that those two indexes are starting to move up and provide energy for the small caps, along with the market more broadly, let’s look and see if some internal indicators are starting to show the same thing.
Below, I posted a chart of the S&P 500 with a graph of the number of stocks over their 50-day simple moving average (SMA) in green. As noted, you can see that the S&P 500 has been going up in a consistent channel, but you can see that the number of stocks above their 50-day (SMA) has definitely gone in cycles. Many of us experienced this directly when the number of stocks setting up really dwindled over the summer. It felt like there were very few good stocks to pick from and only a handful of stocks were supporting the market.
This chart helps to place a visualization with that feeling and proved that many stocks were not doing well over the summer. It has only been recently that we started to see more stocks starting to come alive. While the 50-day (SMA) is a pretty standard moving average to get over, it can still take some work to achieve.
This is all a good development and is an indication to me that more and more stocks are starting to get out of their downtrends and actually get into gear on the upside. September could still be a bit of a question mark but I think this sets the stage for broader participation going into the end of the year.
Your Profit Pilot, TG