The S&P 500: It's Worse Than You Think

AdamWe all know that feeling… when something seems fine on the surface, even though trouble is brewing just below.

The feeling is almost imperceptible at first.

Then you recognize it: a weird feeling in your gut, even if you don’t know what to make of it.

Over time, worry and fear affects your ability to make decisions…

And finally, your worst fears are confirmed. But, usually, only after it’s too late to save yourself!

That’s pretty much the progression of the “something-just-ain’t-right” feelings that investors have endured for over two years now.

And this chart shows why…

S&P 500 Market Breadth Shows Bearish Undertones 2010-2015

2013 and 2014 were great years for stocks – the S&P 500 climbed 30% and 11%, respectively. What’s more, the steady climb higher was almost completely void of volatility.

So, on the surface, everything seemed perfectly fine.

But as this chart shows, there was trouble brewing under the surface. As the S&P 500 marched higher over the last two years, a growing majority of stocks inside the index fell lower.

In other words, fewer and fewer individual stocks have been participating in the broader bull market!

You see, the moving average is a simple measure of a stock’s trend. If a stock’s price is above its 200-day average, you can call the stock “bullish,” or in an uptrend. And if the stock’s price is below its 200-day average, you can call the stock “bearish,” or in a downtrend.

And over the last two years, the number of stocks that are above their 200-day average (i.e. bullish) has been steadily declining… even though the price of the S&P 500 has been steadily rising.

You can see this in the chart above. The S&P 500 (SPY) on the top half of the chart shows “bullish prices.” Meanwhile, the “market breadth” – or percentage of stocks in the S&P 500 currently above their 200-day moving average – is plotted on the bottom half as “bearish breadth.”

Market breadth is just a technical term for the percentage of stocks in the S&P 500 which are currently above their 200-day moving average.

In May 2013, more than 90% of the stocks in the S&P 500 were above their 200-day averages. Almost all stocks were in bullish uptrends… and so the broad market’s bullish trend was considered “healthy,” since it was supported by a large number and variety of individual stocks.

But now, less than 20% of stocks in the S&P 500 are above their 200-day moving average. That means that 80% of S&P 500 stocks are now in bearish downtrends. And that’s a troubling sign for the broad market.

Simply put: a broad bull market can’t be healthy if so many of its stocks are sick.

Of course, this shouldn’t catch you completely off guard. We’ve been warnrning about this for some time now. And the good news is… it’s not too late to do something about it.

I told subscribers to our monthly Boom & Bust subscribers to get out of all long stock positions on September 11, when my broad market sell signal was triggered. And I suggest you do the same – get out before it’s too late!


Adam O'Dell


Chief Investment Strategist, Dent Research

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.