Pockets of Strength Outweigh Pockets of Weakness


The stock market is never 100% bullish with all stocks participating in an uptrend. There are always some holdouts and pockets of weakness, but the broader market can continue higher as long as the pockets of strength are greater than the pockets of weakness. 

The percentage of stocks above the 200-day EMA is a great way to measure internal strength and this indicator has remained strong since mid September. Of note, S&P 500 %Above 200-day EMA (!GT200SPX) has been above 70% since September 12th and large-caps show the most internal strength overall. Mid-Cap %Above 200-day EMA (!GT200MID) has been above 60% since September 12th and above 70% since November 28th. Small-Cap %Above 200-day EMA (!GT200SML) has been above 60% since September 15th and oscillated around the 70% level since late November. 

Currently, the percentage of stocks above the 200-day EMA is as follows: S&P 500 (83%), S&P Mid-Cap 400 (78%) and S&P Small-Cap 600 (72%). This implies that 77% of stocks in the S&P 1500 are above their 200-day EMA and 23% are below. 

Thus, around a quarter of stocks in the S&P 1500 are in long-term downtrends and not participating in the current bull market. This may seem negative, but it is not. Stocks in long-term uptrends outnumber stocks in long-term downtrends by a 3 to 1 margin and this is more than enough to support a bull market. The trouble starts when these lines start moving below the 50% level. Let's not cross that bridge until it gets here. 

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Thanks for tuning in and have a good day!
--Arthur Hill CMT

Plan your Trade and Trade your Plan

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at 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 market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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