Market's Bill of Health

July 20th, 2013

by Chris Puplava

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The markets were able to exceed their May peaks this week and reach new all-time highs. Likewise, the market's momentum has picked up steam with the short to long-term outlook holding firmly in bullish territory. Cyclical sectors of the market are leading, which is also bullish, and the main bearish concern, technically speaking, is that the market is currently overbought, which could lead to some consolidation over the coming week.

S&P 500 Member Trend Strength

As shown below, the outlook for the S&P 500 is clearly bullish as 87.4% (or 437) of the 500 stocks in the index have bullish long-term trends. The market's intermediate outlook is back in bullish territory at a reading of 70.4% and the market's short term outlook has also moved back into bullish territory at an 85% reading.

* Note: Numbers reflect the percentage of members with rising moving averages: 200-day moving average (or 200d MA) is used for long-term outlook, 50d MA is used for intermediate outlook, and 20d MA is used for short-term outlook.

Breaking out the 500 stocks within the S&P 500 into their respective sectors and viewing their long-term (200d SMA) and intermediate-term trends (50d SMA) shows a very bullish picture. Looking at the short-term (20d SMA) picture shows a robust market given the sector with the worst breadth, the technology sector, has a strong 81.4% of their members above their 20d SMAs with most in the 90%+ range.

The most important section of the table below is the 200d SMA column which sheds light on the market's long-term health. As seen in the far right columns, you have 87% of the S&P 500 members with rising 200d SMAs and 87.8% of its members above their 200d SMA. Also, nine out of ten sectors are in long-term bullish territory with more than 60% of their members having rising 200d SMAs.

Source: Bloomberg

Market Momentum

The Moving Average Convergence/Divergence (MACD) technical indicator is used to gauge the S&P 500's momentum on a daily, weekly, and monthly basis. As seen in the table below, the momentum for the S&P 500 has improved with a current BUY signal (bullish or neutral-bullish) in each time frame.

Source: Bloomberg

Digging into the details for the 500 members within the S&P 500 we can see that the daily momentum for the market has improved greatly, jumping from only 9% of members on daily BUY signals on June 7th to this week's reading of 88%.

The greatest change in the market's momentum was an improvement in its weekly momentum which rose from only 43% of members on a weekly MACD BUY signal last week to 54% this week, just show of moving into bullish territory (60%+).

The market's long-term momentum remains solid at a strong 85%, indicating this bull market remains healthy and strong; and what is encouraging is the steady improvement in the market's long-term momentum since last summer.

Source: Bloomberg

The strong surge in daily MACD BUY signals reached well above the 80% threshold, which often signals the market has reached escape velocity and enough momentum has been built to end a correction. We saw this after the summer 2012 and November correction last year (see blue arrows). While the market is overbought in the near term, from an intermediate perspective the market still has room to run as the percent of members on weekly MACD BUY signals hasn't reached the 70%+ level.

Source: Bloomberg

52-Week Highs and Lows Data

Also, the market's strength is broad based as more than one third of the entire S&P 500 has reached a new 52-week high during the week. What is even more significant is that economically-sensitive sectors are leading the charge higher (blue box), a hallmark of a strengthening stock market and economy.

Source: Bloomberg


The market correction that began on May 22nd is over with the major indices hitting new all-time highs. Short-term momentum remains strong and suggests that the path of least resistance is up; however, given the overbought nature of the market currently, we may have a bit of a consolidation next week. That said, given the market's intermediate outlook has yet to hit overbought territory as evidenced by a mild 54% of S&P 500 members with weekly MACD BUY signals, the next intermediate top for the market is not on the near horizon.

Originally posted at Financial Sense

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