The Golden Cross Index (GCI) and Silver Cross Index (SCI) give a much better picture of market breadth than any advance-decline based indicator. And, rather than breadth, we think of them as giving an accurate measure of participation -- the percentage of stocks participating in the up or down pressures driving the market.
The GCI is a long-term indicator that tracks the percentage of stocks in a given index that have the 50-EMA above the 200-EMA, the venerable Golden Cross. Below is a chart showing the GCI for the S&P 500, Nasdaq Composite, and NYSE Composite Indexes. We consider GCI readings above 70 to be bull market conditions; between 70 and 50, correction territory; and below 50, a bear market. These levels are somewhat arbitrary and leave room for subjective interpretation. As you can see, the Nasdaq Composite and NYSE Composite are deeply into the bear market range. The S&P 500, while still above 50, is barely so and will probably join the other two soon. Note how the GCIs topped well ahead of their price indexes -- up to a year or more.
The SCI is an intermediate-term indicator that tracks the percentage of stocks in an index with the 20-EMA above the 50-EMA, which we call a Silver Cross. In the chart below, we have the same three market indexes with their SCIs. The SCI moves more quickly than the GCI, and we can see how readily it responded to the March rally. Nevertheless, the SCIs are all below 50 and falling again.
DecisionPoint has SCIs and GCIs for 21 market and sector indexes. The following table shows the SCI and GCI (sorted by SCI value) for each of them. This gives a clear picture of strongest to weakest index/sector in terms of participation. As you can see, all but four are at correction levels, while 16 are at bear market levels. Note that Technology is the SCI ranked second from the bottom.
CONCLUSION: The Silver Cross and Golden Cross Indexes are excellent indicators for assessing breadth and participation in the medium- and long-term. The broadest market indexes are showing that upside participation by their components is mighty thin. The situation is even worse for sector indexes. The S&P 500 is still slightly above 50% level, but just barely. More selling will surely send into the bear market zone.
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Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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