Over the past few days, I’ve been looking at the charts of the individual companies that make up the S&P 500 in order to gauge the overall health of the current market rise. The market doesn’t look too overbought at this point, especially when taking a look at the number of stocks in the S&P 500 trading above the 200-day moving average (DMA).
In the past, the S&P 500 has topped out when at least 90% of stocks are trading above the 200 DMA. The market is not at this point yet — “only” 75% of stocks in the S&P 500 are currently trading above the 200 DMA.
The market is still rising in an orderly fashion and hasn’t entered the “fear and greed” stage, when the market is controlled less by fundamentals and more by emotion (where we will see 90% or more of the stocks trading above the 200 DMA).
My thinking is that we will reach the past highs of the current secular bear market, and top out just under 1600.
Like the secular bear of 1966-1982, there is a “lid” on the market:
I don’t think the global economy has recovered anywhere near enough to justify the market trading above this “lid”. The most likely scenario is a very similar pattern to the 1975-1976 market — a rise to the “lid”, then a multi-month decline.
Of course, this is good for active investment managers (like myself), but bad for buy and hold investors.