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Weakening Market Breadth: Impact on S&P 500 and Nasdaq

Weakening Market Breadth

Weakening Market Breadth: Exploring its Impact on S&P 500 and Nasdaq – Key Insights into Market Trends and Opportunities.

In recent market developments, the S&P 500 Index (SPX) and the Nasdaq Composite Index have shown weak market breadth, with a notable percentage of their constituent stocks exhibiting bearish signals. As investors closely monitor these indicators, they raise questions about the potential implications for the future direction of these prominent US indices.

Weakening Market Breadth-S&P 500 Index

As of the most recent trading session, only 18% of the companies listed in the S&P 500 Index were trading above their respective 20-day moving averages (DMA). Historical data from 1996 onwards suggests that when the percentage of S&P 500 companies trading above their 20 DMAs falls within the range of 17% to 20%, the index experienced positive returns 67% of the time over the subsequent 30 days. This historical performance indicates a potential likelihood of favorable returns in the month ahead.

Similarly, historical data for the same period indicates that when 21% to 24% of the S&P 500 constituents were trading below their respective Lower Bollinger Bands, the index saw positive returns 66% of the time over the following 30 days.

Furthermore, the latest data shows that 17% of S&P 500 companies had their 14-day Relative Strength Index (RSI) below 30. The historical analysis covering the same timeframe reveals that when the percentage of companies with a 14-day RSI below 30 falls within the range of 15% to 18%, the index has experienced positive returns 68% of the time over the ensuing 30 days.

Nasdaq Composite Index

Turning to the Nasdaq Composite Index, as of the most recent data, approximately 23% of the index’s constituent companies were trading above their respective 20-day moving averages. Historical data spanning from 2002 onwards indicates that when the percentage of Nasdaq Composite companies selling above their 20 DMAs falls within the range of 22% to 25%, the index experienced positive returns 72% of the time over the subsequent 30 days.

Similarly, historical data reveals that when 12% to 15% of the Nasdaq Composite companies were trading below their respective Lower Bollinger Bands, the index saw positive returns 62% of the time over the following 30 days.

Furthermore, as of the latest data, 17% of the companies in the Nasdaq Composite Index had their 14-day Relative Strength Index below 30. Historical analysis from 2002 onwards indicates that when the percentage of companies with a 14-day RSI below 30 falls within the range of 16% to 19%, the index has experienced positive returns of 65% over the ensuing 30 days.

In conclusion, the recent weakening of market breadth in US indices, mainly the S&P 500 and Nasdaq Composite Index, presents a potentially contrarian signal. While these indicators suggest oversold conditions, they also point to the possibility of a minor rebound ahead of the US earnings season. Investors will closely monitor these trends for insights into the market’s future direction.

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