A key trait of the S&P 500’s strong performance this year has been that the major moving averages of the index and its industry groups have all been trending higher. In fact, there hasn’t been a single day all year where the S&P 500’s 50 or 200-day moving average (DMA) was lower than it was the week before. That’s indicative of a solid overall trend, but lately, there have been some cracks in the armor that we have been highlighting to clients over the last couple of weeks.
From a longer-term perspective, practically every industry group has a rising 200-day moving average. As shown in the chart below, just last week the percentage of industry groups with rising 200-day moving averages increased to over 95%. The last time we saw a stronger reading was back in November 2014. Now if only we could get Energy’s 200-DMA to turn. Then we’d be up to 100%!
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While the long-term trends are still to the upside, we have seen the trend in short-term moving averages really start to shift. The chart below is the same as the one above, except that instead of looking at the percentage of industry groups with rising 200-DMAs, we used a shorter term 50-DMA instead. Here the picture has really deteriorated in the last few weeks. After getting as high as 95.8% earlier this year, at the June and August peaks, the percentage only reached as high as 88%. But after that second peak in early August, the percentage of industry groups with rising 50-DMAs has come crashing down to just 33.3% as of this morning. That’s the weakest reading we have seen since the days just after the election.