Occasional Daily Thought

Regular consumers of our research content know we place a great deal of import on both the trend and the momentum of broad equity benchmarks. We define a strongly trending market as one where greater than 50% of the benchmark’s members trade at a price greater than the average price of that member over the past two hundred trading days. Currently, 73% of S&P 500 members trade at a higher price than their 200-day average price.

While the trend in the 2024 bull run persists, we feel confident of further market advances; however, should the percentage of S&P 500 Index members in an uptrend fall below 60%, that may give us pause. Notice in the above illustration how markets continued to advance as the trend deteriorated in 2021. Ultimately, the capitalization weighted benchmark succumbed to the deteriorating trend underneath the surface leading to the cyclical bear market of 2022.

The number of S&P 500 Index members that trade at 20-Day highs provides valuable insight into the possible forward 6-Month S&P 500 Index performance. 20-Day highs have remained stubbornly low for the last few months. While history does not imply disaster for the markets with low 20-Day high statistics, we would prefer to see greater than 50% of S&P 500 companies record 20-Day highs as the year closes.

Why does this statistic matter?

Well, the longer 20-Day highs remain below 50%, the lower the average forward 6-month performance. At approximately 75-days where we find ourselves now, the average forward 6-month returns are about average; however, as time passes, forward 6-month returns suffer.

As always, we will attempt to communicate clarity amongst the chaos. Please contact us with your thoughts or questions. Take good care.

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