Positive breadth for the S&P 500

Posted by Jack Haddad on March 2, 2008 at 11:03 am

Charts of the S&P 500 trading range and 50- EMA are shown below. The trading range chart highlights historical overbought and oversold levels for the index and the 50-day moving average chart highlights the percentage of stocks in the index that are currently trading above their 50-days.

Clearly, the percentage of stocks trading above the 50-EMA is indicatring strength. This gesture is interesting in the wake of S&P trading below its 50-EMA. Prior to Friday, more than 50% of stocks were above their 50-days (currently at 46%). This underlying breadth is a big pickup from the range it has been in for a couple of months now and bodes well for the market going forward.

click to enlarge

The chart below shows the 10-day advance/decline line of the S&P 500 Financials sector. This indicator measures the average daily number of advancers minus decliners over the last 10 days. When the indicator moves into the red zone, breadth is considered overbought and vice versa for the green zone. One thing I have noticed for the Financials is that each subsequent low reading has been higher than the previous one. This is a bullish sign for a sector that currently has a lot of unknowns.