Santa Claus delivered some good news to investors on the last trading day before Christmas, with the S&P 500 Index taking out a spread triple top (and an inverted head and shoulders) and breaking its 200-day moving average – a key indicator of the primary trend of the stock market. This was the fourth attempt of the Index since October to trade and stay above the 200-day line. It is obviously premature to speculate whether this will be fourth time lucky, especially as stocks rose on very thin volume. The Index a few days ago also breached its 50-day moving average – an intermediate term indicator. However, in order to be entirely bullish the 50-day MA also needs to cross the 200-day MA, and both averages need to be in uptrends.
Source: StockCharts.com
The number of NYSE stocks trading above their respective 50-day moving averages has increased to a respectable 69% from almost 21% in November. In order to be bullish about the secondary trend, one would expect the majority of stocks to be above the 50-day line. As an aside, Consumer Staples (90%), Utilities (85%) and Industrials (70%) are the strongest sectors, with Technology (51%) and Energy (40%) the weakest. In order to be bullish about the secondary trend, one would expect the majority of stocks to be above the 50-day line.
Source: StockCharts.com
However, for a primary uptrend to manifest itself, most of the index constituents also need to trade above their 200-day averages. This is a slow indicator, and the number at the moment is 50%. This is a big improvement on November’s 21% reading, meaning half of the 500 S&P Index constituents are now in uptrends.
Source: StockCharts.com
In addition to the above, the fact the S&P 500 Index (and many other major stock market indices) has formed a higher low in December is positive. After all, higher lows are how a new trends starts. On the downside, breaks below the November lows would confirm a resumption of the downtrends.
Time will tell if Santa has in fact brought good news this time. Happy holidays!
