Market’s Bill of Health

Wed, Feb 13, 2013 - 2:56pm

The markets continue to display impressive strength with a bullish outlook for the short to long-term view. We have a broad-based rally where every sector is participating as well as every market cap. In fact, the broadest US index continues to hit an all-time high (chart link) which supports a bullish outlook on the market.

S&P 500 Trend Strength

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

S&P 500 Member Trend Strength

Breaking out the 500 stocks within the S&P 500 into their respective sectors and viewing their long (200d SMA) and intermediate trends (50d SMA) shows the defensive sectors are surfacing as short-term leaders as they possess the strongest short-term breadth (% of members above their 20 day moving average). 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 column, 78% of stocks in the S&P 500 have rising long-term moving averages with all ten sectors in bullish territory.

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 for short, intermediate, and long term momentum evaluation. Compared to last week, the percent of stocks within the S&P 500 with daily MACD BUY signals weakened from 48% to 43%.

The intermediate momentum of the market remained steady at a strong 84% this week. Further evidence that there has been no dent in the markets longer-term outlook is the slight improvement with the percent of S&P 500 members with monthly MACD BUY signals increasing from 70% to 71%.

In addition to the deterioration in the percent of S&P 500 members with daily MACD buy signals, the S&P 500 Index itself is on a daily sell signal, the first sell signal since the end of December.

52-Week Highs and Lows Data

We have a well-represented market rally as more than one fourth of the entire S&P 500 hit a 1-year high in the last five days. As seen below, we have a very robust market rally on our hands and there is very little red below. That said, we are seeing a shift in the sectors that are hitting new highs. Health care, consumer staples, and financials continue to be well represented but we have seen a drop off in the industrial and consumer discretionary sectors, both considered cyclicals.

Source: Bloomberg

Taking a historical look at 52-week highs and lows we see that 52-week lows remain absent while 52-week highs continue to remain strong. While we are becoming overbought and due for a pullback, I would expect any pullback to be mild in nature and unlike the two corrections in 2012 as we are not seeing the same degree of negative divergences in new 52-week highs now as we did leading up to those two tops.

Source: Bloomberg


The market continues to march higher in 2013 as the short-term to long-term trends and momentum for the S&P 500 remain bullish. The slight deterioration in the daily readings for MACD BUY signals as well deterioration in short-term trend strength in cyclicals suggests the market may cool off a bit ahead to help alleviate the market’s overbought condition. After a period of cooling off the market could possibly hit new highs as the intermediate and long term outlook for the markets continue to strengthen.

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