Two Bullish Breadth
Signals

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.

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