At one point during the day yesterday, the percentage of stocks in the S&P 500 trading above their 50-day moving averages dipped down to 39%. Had this breadth measure closed at 39%, it would have been the first time the reading closed below 40% in 198 trading days dating back to November 4th, 2016. A small late-day rally into the close saved the streak yesterday, but entering today the reading is sitting right at 40%. The streak will most likely end with a decline of any magnitude for the S&P today.
Below is a chart showing historical streaks of trading days with 40%+ of S&P 500 stocks closing above their 50-day moving averages. The length of the streak is just another data point showing just how long it has been since we’ve had any kind of market pullback.
There have only been two longer streaks in the S&P’s history dating back to 1990 when this breadth data begins. In 1994 there was a 216-trading day streak of consecutive 40%+ breadth readings, and in 1995 there was a 217-trading day streak.
Once these long streaks of positive breadth come to an end, there’s a question of what it means. Does the breakdown in breadth finally signal that a more prolonged market pullback has begun, or is it actually a good time to buy?
The table below shows all streaks of 100+ trading days where 40%+ of stocks in the S&P 500 closed above their 50-day moving averages. The date shown is the day the streak came to an end, and next to each date we show how the S&P 500 performed over the next week, month, and three months.
As shown at the bottom of the table, when these streaks have come to an end, the market has performed very well in the near term the large majority of the time. Over the next week, the S&P has averaged a gain of 1.10% with gains 9 out of 13 times (69%). Over the next month, the S&P has averaged a gain of 2.45% with positive returns 10 out of 13 times (77%). And over the next three months, the S&P has averaged a big gain of 4.65% with positive returns 11 out of 13 times (85%). The biggest three-month drawdown seen after these streaks have ended was just -2.67% following the 101-trading day streak that ended on January 13th, 2005.