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Percentages of Stocks Above 50-Day Moving Averages

by: Bespoke Investment Group August 29, 2008 | about stocks: SPY    

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Currently, 64% of stocks in the S&P 500 are trading above their 50-day moving averages.  As shown in the chart below, the reading has been creeping higher and higher since mid-July, and looks to be on its way to the 80%-85% levels seen twice over the last year.  Readings above 50% are signs of a healthy market, and it hasn't been above 50% for much of 2008. 

From a sector perspective, all of them except for Energy and Utilities have more than 50% of stocks trading above their 50-days.  While Utilities are just under 50% at 48%, Energy is extremely weak with a reading of 5%.  Telecom and Health Care are currently the most robust sectors at 89% and 85% respectively, followed by Consumer Discretionary (77%) and Industrials (75%).

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This article has 10 comments:

  •  
    Aug 29 06:37 PM
    My understanding is that to use this as a forward looking instrument, you need to accept the assumption that if a sector has rallied lately, then it will rally further (financials). Conversely (the case of energy here), if it has been beaten down lately, the beating will continue.
    Seems to me that may or may not be true. Am I missing something?
    Reply
  •  
    Aug 29 08:05 PM
    Based on that idea, you would have bought in May. Look how that turned out.
    Reply
  •  
    Aug 29 10:03 PM
    Seems the big picture is missing in this article:

    S&P 500 50 day moving average in Nov 07: 1500 ish
    S&P 500 50 day moving average in Sept 08: 1280 ish

    The moving average has gone down about 15% over this time interval. Given the huge percentage swings in above/below chart, it stands to reason that most stocks are very close to their 50 DMA and following it rather closely. Thus, "on average" they are likely to be roughly 15% below their prices one year ago.

    Doesn't look like a healthy market to me.

    More likely that you could use the %above/below as a short term contrary indicator and make money. The peaks in your indicator coincide with short term market tops and vice-versa.

    Given that recent history, saying a reading above 50% with a downward sloping moving average is "healthy" is like saying a person attached with a short chain to an anchor in 20 ft. deep water is better off than one chained to an anchor in 40 feet of water. Neither one could be called "healthy".
    Reply
  •  
    Aug 30 04:53 AM
    Smarty_Pants has added a useful insight ie it matters whether if you are above 50day that is downward sloping or upward sloping. When all the factors are considered not any single factor, the balance of evidence appears to be that the market is weak and not healthy. The analogy to being underwater with a short anchor chain is very picturesque and appropriate less we forget. When stocks are below the 200day average for a prolonged period and worse when the SLOPE of the 200d line is downward sloping or topping out, it means the stock is drowning underwater. Currently market wide indices are below a downward sloping 200d moving average so we cannot see much joy at least for momentum traders. Of course the darkest hour precedes dawn but walking in darkness requires utmost caution.
    Reply
  •  
    Aug 30 07:32 AM
    Most of the comments are meaningless. What the market was last year? Who cares. Only the future is important for making money. The post is showing that the market is improving--nothing more. But this is important not what the market was last year.
    Reply
  •  
    Aug 30 10:30 AM
    Investor 88
    The stock is drowning under water.
    Is not that redundant?
    Reply
  •  
    Aug 30 10:52 AM
    But the percentage of stocks above their 200 day moving average is still rather bleak.

    S&P
    stockcharts.com/h-sc/u...=$SPXA200R&p=D&...

    NYSE
    stockcharts.com/h-sc/u...=$NYA200R&p=D&...

    Reply
  •  
    Aug 30 10:59 PM
    Another bit of data to check would be which stocks in the sectors are above their 50dma . Are they the speculative ones ? Small caps . Amex low volume shooting stars ? Speculative moves in these risky stocks that move markets to a supposed bullish point do not convince me to change "cash" positions . I really like the data presented though . charts say drop coming imho. Bill
    Reply
  •  
    Aug 31 04:10 PM
    The conclusion I come to from this data is that it is time to start buying energy and selling almost all other sectors... In particular, these kinds of indicators typically top out around the 80% before giving way to a correction...
    Reply
  •  
    Aug 31 07:29 PM
    some of you guys out there are completely missing the point...

    when you see stocks being pumped up above 50 day m.a., these are "pros" and not "schmoes" doing the buying... there's no denying this is a bear market, but i guarantee you that market bulls will be invested before and not after the bear market ends... there will be no press release calling for an end to the bear market...

    the fact that a higher % of stocks are trading above 50 day m.a. indicates improving strength (as the curve of m.a. is downward)... the bear market is for real and it will continue to inflict collateral damage, but some of these companies represent buying opportunties for institutions who would otherwise create huge volume surges & spikes to get their orders filled under normal market conditions...

    some of these sectors are approaching overbought areas and due for a pullback, but have also formed double & triple bottoms in terms of % of stocks trading above 50 day m.a.
    Reply
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