Generals March, Few Troops Follow – View List of Essential Breadth Indicator Charts | chart of art

Divergence reflects a disconnect between price and indicator. A bearish divergence is formed when the price forms a higher high and the indicator fails to confirm this high. In the example presented below, the S&P 500 rises and a small number of stocks surpass their 50-day and 20-day SMA. Few stocks participate in the upward trend from late December to early February. This shows superficial weaknesses, which can extend to the index.

The chart below shows two breadth indicators based on S&P 500 stocks: the percentage of stocks exceeding their 50-day and 20-day SMA. The S&P 500 hit another record high this week and remains well above its 50-day and 20-day SMAs. These two indicators maintained their pace in December but have stumbled over the past few weeks. Overall, significant differences are forming, which could signal a correction or decline in the stock market.

The first display window shows the SPX %Above 50-day SMA moving above 80% on December 1st and remaining above 80% until January 16th (shaded in green). This indicator has since fallen below 80% and weakened further in February. The index hit new highs and only 66.40% of its components exceeded their 50-day SMA. That means 37.6% are below the SMA. Overall, this indicator is above 50%, but fewer stocks are above their 50-day SMA. The strength of the S&P 500 is weak.

The lower window shows the SPX %Above 20-day SMA exceeding 80% from November 14th to January 2nd (shaded in green). This indicator plummeted to the 30% range in mid-January and then rebounded to the 60% range. Once again, the S&P 500 has reached new highs, with far fewer stocks surpassing their 20-day SMA.

In the S&P 500, the top 10 stocks by market capitalization account for 32% of the index, and the top 50 stocks account for 57.34%. This market capitalization weighting means that differences in breadth do not always lead to weakness in the index. But we are also entering the seasonal low season. There was a bearish differential from December 2022 to February 2023, with the index falling approximately 9% from February 2 to March 13, 2023 (yellow shaded). Modification is part of the process.

Interested in breadth analysis? StockCharts members who sign up for Chart Trader receive the essential range indicator ChartList. Organized in a logical top-down manner, the list features over 100 custom width charts covering major indices and sectors. Reports and videos explaining the charts and indicators are also provided. Click here for more information.

TrendInvestorPro covered this growing gap and showed a 30-year seasonality chart for the S&P 500 earlier this week. The combination of a weak seasonal pattern and worsening breadth argues for a downtrend. Chart Trader reports and videos are published every Tuesday and Thursday. This includes extensive market analysis as well as carefully selected setups for ETF and stock trading. Click here for more information.

////////////////////////////////////////////////////