Market Health: Measuring Mr. Market’s Pulse
An angiogram is an X-ray that provides images that can help doctors detect blood vessel abnormalities, including weakened blood vessels, plaque deposits, and blood clots. Our Primary Trend Indicator is similar, getting inside the market and detecting what is going on beneath the surface.
One input into our “angiogram” is the measurement of the number of stocks that are trading above various moving averages. Are stocks participating, or are there clots in the market’s arteries?
Below we see the S&P500 Index in the top frame and the percent of stocks above the 20 Day Moving Average, and the percent of stocks above the longer 200 Day Moving Average in the bottom pane. You can see the difference between the major top in February and the top that started the fall correction after the market peaked at the end of August. In February, the weakness in the short term indicator spilled over into the longer 200 Day indicator. In August, the longer 200 Day readings held up and the correction ended and the market went higher.
At this stage, the longer indicator is still holding up and the patient should be able to avoid major health problems. Volatility remains high, Mr. market is way too optimistic and needs a rest, but odds continue to suggest he’ll avoid the hospital.