Rolling Over

Today, 73% of the stocks in the S&P 100 Index trade above their long-term 200-day moving average. That is a healthy majority and a requirement for broad bullish participation in a rising equity market. As long as the bullish percentage is above 50%, the benefit of the doubt should be given to the bullish trend. The risk lies in the rounding top pattern currently forming in this chart. Prior instances where the number of stocks trading above their long-term moving average fell below 50% coincided with a declining stock market. Another correction seems imminent. The low risk set up is to wait until the percentage of stocks above their long-term trend reverses lower and reaches an oversold extreme percent in the single digits. Once that occurs, we can observe the overall health of the stock market and search for potential buying opportunities.


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