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S&P 500: Trust The Thrust

By Dr. Arnout ter Schure Stock MarketsAug 02, 2022 12:43PM ET
www.investing.com/analysis/sp-500-trust-the-thrust-200627966
S&P 500: Trust The Thrust
By Dr. Arnout ter Schure   |  Aug 02, 2022 12:43PM ET
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Four weeks ago, see here, I shared with you a periodic signal on the S&P 500:

 “the percent of stocks in the S&P 500 [SPX] above their 50-day simple moving average (50-d SMA SPXAR50) … went from below 2.5% to above 20% by June 24.” 

Since data became available on this indicator in 2002, such signal only flashed five times. I also found that:

 “Three of these conditions led to a shorter-term relief rally, followed by one last lower low several months later (2002, 2008-2009, 2011), whereas to were after immediate bottoms (2019 and 2020). Regardless, in all five cases, the SPX rallied for at least one year before the subsequent more considerable decline would set in and result in a new signal.

Since the signal occurred on June 24, let’s check the index’s performance.

  • Down 3.1% on a closing basis by July 14 and up 5.3% on a closing basis until yesterday.

Since I shared the signal with you on July 6, let’s check the index’s performance.

  • Down 1.4% on a closing basis by July 14 and up 7.8% on a closing basis until yesterday.

Thus, while back then, many were caught up in the bearish sentiment hype du jour, armageddon and the end of the world were a certainty, the index has--contrarily--rallied both since June 24 and July 6, and the upside reward has outperformed the downside risk. Meanwhile, the SPXAR50 breadth indicator now sits at a healthy 76%. See Figure 1 below.

Stocks In The S&P 500 Trading Above Their 50-D SMA (Percentage)
Stocks In The S&P 500 Trading Above Their 50-D SMA (Percentage)

Figure 1. The percent of stocks in the S&P 500 above their 50-d SMA

In other words, the percentage of stocks in the S&P 500 above their 50d SMA has increased thirty-fold since mid-June. To put that into perspective, one can divide the SPXAR50 by the SPXAR200. The latter is the percent of stocks in the S&P 500 above their 200-d SMA. This ratio is shown in Figure 2 below, and it went from 0.15 around mid-June to 2.5 by July 21: dotted blue vertical line.

S&P 500 Daily Chart
S&P 500 Daily Chart

Figure 2. The percent of stocks in the S&P 500 above their 50-d SMA divided by those above their 200-d SMA

Also, this can be considered a breadth thrust as data since 2002 shows that readings from around 0 to over 1.75 are pretty rare (only nine occasions; green and orange dotted vertical lines).

Except for the signal in 2008, all other occasions meant the index was close to or had already passed a significant low and entering a multi-month to a multi-year bull. Please note the extremely high reading in 2009, which signals the start of generational Bull (Cycle 5 of Super Cycle III per my EWP count I shared with you here).

Thus, so far, one could have and can trust the thrust signal I shared with you a month ago. Besides, additional data shows that another breadth thrust signal can back up the thrust. Maybe putting the bearish hat aside and donning a bull cap is prudent? Oh, and don’t shoot the messenger. I am merely communicating what the data shows: Just the facts, ma’am.

S&P 500: Trust The Thrust
 

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S&P 500: Trust The Thrust

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Comments (9)
Jonie Williams
Jonie Williams Aug 19, 2022 7:20PM ET
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166095107186999.jpg
Great spam article.
Mahmoud Elbolkini
Mahmoud Elbolkini Aug 05, 2022 1:15AM ET
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Thrusting to climax
Jimmy John
Jimmy John Aug 02, 2022 11:58PM ET
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4200 tops it.
Hunt Richardson
Hunt Richardson Aug 02, 2022 11:58PM ET
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correct. then short
Viren Patel
Viren Patel Aug 02, 2022 10:14PM ET
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dude. you are 100% spot on.. I been calling this since spx tried that 3500 nonsense on us...
Raj Shan
Raj Shan Aug 02, 2022 5:37PM ET
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* Picked
Raj Shan
Raj Shan Aug 02, 2022 5:37PM ET
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Yeah, that was a great call.. pricked up the top beaten down tech blue chips and it paid handsomely ! Thanks 👍
Zman Trading
ZmanTrading Aug 02, 2022 4:51PM ET
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A fact for you:«The last 10 times the U.S. economy had 2 or more consecutive quarters of negative GDP growth, the NBER confirmed it was in a recession. You have to go way back to 1947 to see anything different from that.» That fact combined with the fact that market bottoms AFTER NBER declares recession should convice most ppl that bottom is NOT in yet. Examples: NBER declared recession in dec 2007, bottomed in march 2009. Declared recession july 1990, bottomed oct 1990. Declared recession mar 2001, bottomed oct 2002. Declared recession july 1981, bottomed aug 1982
jason xx
jason xx Aug 02, 2022 4:51PM ET
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He didn't say the bottom was in he said the bottom was a year away if it re bottoms.
jason xx
jason xx Aug 02, 2022 4:51PM ET
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Here's another fact for you. The last 10 times we had 2 consecutive quarters of negative gdp unemployment was at record lows zero out of 10 times.
Zman Trading
ZmanTrading Aug 02, 2022 4:51PM ET
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jason xx Chill, unemployment will rise. Just wait and see…
Zman Trading
ZmanTrading Aug 02, 2022 4:51PM ET
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jason xx Friday may give you a hint…
Zman Trading
ZmanTrading Aug 02, 2022 4:51PM ET
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jason xx «Regardless, in all five cases, the SPX rallied for at least one year before the subsequent more considerable decline would set in and result in a new signal.”Rallied for a year? It had small relief rallies but market lost more % than it gained before it finally bottomed.
jason xx
jason xx Aug 02, 2022 2:50PM ET
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I never doubted you and thank goodness I did so much buying when spx was 3600! let us know when you see a significant pullback on the horizon?
Dr. Arnout ter Schure
Dr. Arnout ter Schure Aug 02, 2022 2:50PM ET
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thank you!
Peter ONeill
Peter ONeill Aug 02, 2022 2:41PM ET
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EVERY headwind is against the market. The Fed is increasing rates for the foreseeable future, Inflation at 40-year highs, National debt at its highest level in 80 years, international taxation, global economies all stalling or even crashing under the weight of debt/inflation - yet you still have some constant Bulls who always say hey let the market rise. THE FACT is, that almost every analyst on the market sees the current rally as a deadcat bounce and based on one last good quarterly (but very mixed) reporting season. Q4ish onwards is when we will start seeing the impact of inflation and interest rate hikes etc on bottom lines. A lot of companies are still 30%+ above their long-term PE Ratios and these PE ratios will be even more stretched once we start seeing an end to an artificial stimulus bubble impacting revenue streams. For the first time in 15 years the market is facing QT. 100% it has not hit a bottom yet (I can easily see it fall below precovid levels in the next 12 months).
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Peter ONeill
Peter ONeill Aug 02, 2022 2:41PM ET
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Dr. Arnout ter Schure  Sorry for disagreeing with you ;) Should that not be allowed? ;) Ironic how 95% of your 'analysis' ALWAYS has a Bull side to it - but guess you do only use recent trend lines which were made in a QE environment throughout ;). You ignore the fact we are in a NEW REALITY where the trends and trajectories we have had since 2008 no longer can be applied the same way. We have not had such high inflation in 40 years, debt in 80 years, a global pandemic, the war in Europe, countries with spiraling debt throughout the globe, labor shortages - should I go on??? But you ignore all this and guess the trajectory based on short-term trend lines generated when the markets were all still stable and supported by a QE environment.
Fa Cai
Fa Cai Aug 02, 2022 2:41PM ET
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Peter ONeill  Very possible!
Fa Cai
Fa Cai Aug 02, 2022 2:41PM ET
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Peter ONeill  Very possible if there are enough High IQ investors/traders.
Fa Cai
Fa Cai Aug 02, 2022 2:41PM ET
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" Nasdaq 100 would hit over 18,000 by the end of the year " is very possible, only if there are enough High IQ  investors/traders.
Macke Berra
BerraBernt Aug 02, 2022 2:41PM ET
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"Every analyst" Just check the investor sentiment. What you have said about QT, inflation, war is already known. Say something we don't know.
 
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