Strong breadth & momentum everywhere

by Troy

The stock market’s relentless push higher has been supported by strong breadth & momentum. These are the 2 primary bullish factors for stocks right now.

A 50 day moving average of the NASDAQ Composite’s new high/low ratio is at its highest level in over 15 years:

Such strong breadth was only matched 3 other times over the last 40 years. Each of those 3 cases saw further stock market gains over the next 6 months, although those gains could vanish after that:

Nowhere is momentum more evident than in emerging markets right now. The MSCI Emerging Markets Index’s 20 dma increased 77 days in a row as the index broke through to an all-time high:

Such strong momentum almost always led to more gains for emerging markets over the next 3 months:

Here are some additional breadth charts.

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The % of S&P 500 energy stocks above their 200 dma:

The % of S&P 500 materials stocks above their 200 dma:

The % of S&P 500 technology stocks above their 200 dma:

The % of S&P 500 financial stocks above their 200 dma:

The % of stocks all around the world that are above their 200 dma::

As I said, gobs of breadth.

Conclusion

  1. Long term investors should be highly defensive right now. This speculative bull market may last another 6 months or even 9 months, but in 2 years time, long term investors will be glad they did not buy today.
  2. Medium term traders should go neither long nor short.
  3. Short term trend followers should continue to ride the bull trend because no one knows exactly when it will end.
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