$SPY: 80% of stocks are now over their 200 day moving average. $$Posted: February 8, 2012
By Salvador N. Lara
As a measure of breadth, the 200 day moving average gives us an indication of how strong or weak the overall stock market is and also measures the momentum of stocks compared to past prices. Typically, the 200 day moving average is a very wide ranging moving average and will be a less volatile indicator. The message that the indicator communicates is more significant than that of a shorter average like the 50 day moving average. When the market is weak, this indicator shows that few stocks are above their moving average and therefore below their trend and possibly imply that stocks may worth accumulating at the discounted prices. When the market is very strong, many stocks will be above their 200 day moving average and might signal that stocks are no longer discounted and may even be near or above fair values.
Currently, we have a high reading, which makes sense given the steady rising prices and lack of volatility so far in 2012.
80% of stocks in the S&P 500 are now above their 200 day moving averages
What makes the current reading worth noting is that the measure of 80% had appeared very quickly when compared to how low the same indicator was a few months ago. The same indicator gave a very weak reading in the low teens only a few months ago, making the reading of 80% of stocks above their 200 day moving average an impressive stat when considering how violently we have reached it.
3 years of the percentage of stocks above their 200 day moving average
Given the sharp rise of this measure of stocks compared to their 200 day moving average, from nearly only 10% of stocks above their 200 day moving average to now 80%, this is very impressive and somewhat astonishing for this indicator. It is especially astonishing because the percentage nearly doubled in the last month in January 2012.