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Arthur Hill | 

The S&P 500 %Above 50-day SMA ($SPXA50R) indicator is a breath gauge that measures the degree of participation. In this instance, the indicator tells us the percentage of S&P 500 stocks that are above their 50-day SMAs. In general, a bullish bias exists when more than 50% are above their 50-day SMAs and a bearish bias otherwise (<50%). Using the 50% line to signal shifts can result in whipsaws so it is often helpful to apply a filter. For example, a bullish threshold could be set just above 50% (55%) and a bearish threshold could be set just below (45%). Even though this filter creates a little lag, it reduces the number of signals and whipsaws.

Click this image for a live chart.

The chart above shows the S&P 500 %Above 50-day SMA moving above 55% in early September and remaining in bull mode the last four months. Prior signals are shown with green and red arrows. In fact, the indicator has not even dipped below 55% since this cross. Chartists may notice a bearish divergence from October to January as the indicator formed a lower high and the index pushed to new highs. This shows participation narrowing somewhat. However, keep an eye on the absolute levels. The S&P 500 hit a new 52-week high this week and 77.8% of its components are above their 50-day SMA. This is much less than mid October and early January, but anything above 70% is more than enough to power a rally. The bearish divergence does not show material weakness. It simply shows less strength than before. Look for a move below 45% to reflect actual weakness within the index. See our ChartSchool article for more details.

Arthur Hill
About the author: , CMT, is a Senior Technical Analyst at He has written articles for numerous financial publications including Barrons and Stocks & Commodities magazine. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed technician. In addition to his CMT designation, Arthur holds an MBA from the Cass Business School at City University in London.
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