Follow Through with A Big Participation Pop


Stocks surged for the second Thursday in as many weeks, but this Thursday's surge was a lot different than the previous week. This week's surge featured a strong open and strong close as well as the strongest breadth in four months. What does it mean going forward? Let's investigate.

First and foremost, the long-term trend is up for the S&P 500 SPDR (SPY). The ETF hit a new high in early September and remains well above the rising 200-day SMA. The 50-day SMA (green dashed line) is also above the 200-day.

The chart below shows SPY correcting with a falling wedge and attempting a breakout the previous Thursday (yellow arrow). However, SPY closed near the low of the day and fell the next three days. There was no follow through to the opening gap and breadth was not strong.

SPY repeated the opening gap this Thursday and the result was different. Instead of closing near the low, SPY continued higher after the open and closed near the high. Follow through after the gap shows strength and validates the breakout, as does strong breadth.

The indicator window shows S&P 500 Advance-Decline Percent, which is advances less declines divided by total issues. 475 stocks in the S&P 500 advanced on Thursday and only 25 declined. As such, Advance-Decline Percent surged to +90% and hit its highest level since June 21st. This participation pop further validates the breakout.

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Arthur Hill, CMT

Chief Technical Strategist,

Author, Define the Trend and Trade the Trend

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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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