Trend in Large Cap Equities Becomes Stretched
Below is one of the many charts from this week’s Thrasher Analytics letter that was sent to subscribers on Sunday.
Two weeks ago, on Substack I shared the chart of the drop in new 6-month highs, an example of how breadth data had peaked back in December. Since then, we’ve seen the S&P 500 continue to squeeze out new highs but now shifting focus to momentum, things are getting a little extended.
Below we’ll do look at how far the S&P 500 is from its long-term average. The proverbial momentum rubber band is getting stretched quite a bit right now. SPX is 11.7% above the 200-day MA as of last Friday’s close. When we’ve gotten to 12% in the past, the Index has begun to faulter soon after, as shown by the blue circles. The instances we didn’t see a pullback was when the market was just coming out of a major bear market (2003, 2008 and Covid Crash), which isn’t the case today. The last time we breached 12% was last summer which ultimately led to a 10% pullback. Before that was in early 2018 which was also a quick 10% decline as well.
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