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We have been highlighting breadth improvements in this note for the past few weeks. Over that time, the S&P 500 has trended higher, much to the dismay of the narrative-focused bear camp. Over the past two weeks, there have been two more important breadth developments that support the bull case for equities. The percentage of stocks in the S&P 500 trading above their respective 50-day moving averages went from less than 10% to greater than 90% in less than two months. Additionally, the Advance/Decline Line for the S&P 500 traded to a new all-time high.

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On Friday, for the 10th time since 1960, the percentage of stock in the S&P 500 trading above their respective 50-day moving averages moved from less than 10% to greater than 90% within a 42-day span (two months of trading).

Below, we highlight the forward 21, 63, 126, and 252-day returns and probability of gains following this breadth thrust and compare it to the baseline metrics for the S&P 500 over the same period.

*Data from Amibroker

On Tuesday of this week, the Advance/Decline for the S&P 500 closed at an all-time high. The record high was achieved, with the index still below its all-time high set in January. The A/D Line has a tendency to lead the index, and the move to record levels increases the odds that the S&P 500 will do the same.

Looking at data back to 1968, we can see that when the S&P 500 A/D Line sets a record, there tends to be an improvement in both median return and probability of profit, relative to baseline, over the following 63, 126, and 252-days. In the 21-day period, median performance lags the baseline, but the probability of profit improves.

*Data from Amibroker and Optuma a/o the close on 8/16/2022

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Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.