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% NYSE STOCKS ABOVE 200 AVERAGE

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A reliable measure of the market's strength or weakness can be found in the % of NYSE stocks trading above their 200-day averages. That's because 200-day averages are used to measure a market's long-term trend. [A 50-day line measures short- and intermediate- market trends]. Chart 1 shows the indicator since the start of 2006. The sharp drop during the second half of 2007 was one of the bearish signs that warned of a coming bear market. During bull market corrections, the indicator will often pullback into the 40-50% region. The April 2006 bull market correction bounced from 40%. Drops below 40% signal the start of a bear market which occurred during the second half of 2007. Bear market bounces can rise into the 50-60% region. The April/May bounce rose to 53% before turning back down again. The August bounce failed at 40%. A reading above 60% is normally needed to signal a new bull market. Chart 2 shows the trend during 2008 which is still very low 4%. That means that 96% of NYSE stocks are trading below their 200-day lines. While that historically low reading reflects a deeply oversold market, it doesn't show any sign of turning higher. Remember that the stock market is a market of stocks. The market can't be expected to rise much when the overwhelming majority of its stocks are still in major downtrends.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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