What S&P 500 Stocks Say About the Index

By Bryan McCormick

I have written on a few occasions about how we can use the relative health of the underlying components in an index to get a better sense of what is happening under the hood. Although a basic technical analysis of the index itself is helpful, looking at the behavior of each of the underlying components can give us more insight before moves show up in the index. One way to do that is to look at the breadth statistics of the stocks, in this case using their price in relation to moving averages.

At the time of this writing, more than 400 of the S&P 500 names were trading below their 10-day moving averages; on Friday "just" 257 names were below that moving average. This is a rather breathtaking expansion of breadth deterioration as far as short-term prices direction is concerned. Worse still is that the bulk of those 10-day averages are now acting as overhead resistance (green line on chart below).

When we expand our analysis by moving out to the intermediate-term, the number of stocks in the index that are trading below their 50-day moving averages has also expanded, but by a much smaller number. Today more than 238 names were last trading below their respective 50-day moving (black line on chart below), compared to 191 on Friday.

Last, the 200-day moving averages show that the long-term trend is still intact (purple line on chart). As of Friday, 72 names were below the 200-day line, whereas this morning there were 77 names in that position.

[Click to enlarge]



Summing up the technical condition, we have definitely seen the near-term trend change from more or less neutral to overtly bearish. The intermediate-term is becoming progressively neutral. That is evident too, by the way, in the S&P 500's relatively flat 50-day moving average, which suggests that the intermediate-term is more or less undecided.

We should note, however, that the index is trading below its 50-day moving average. The long-term uptrend is still intact, and that is borne out when we look at the large distance between price in the index and its 200-day average, which is nearly 80 points.

If we continue to see short-term breadth deterioration remain as is or worsen, that weakness will eventually translate into deterioration in the intermediate term. A break of the long-term trend is still some time and price away.

The bulls will attempt to use that as their relative advantage in having a long-term bullish outlook on prices. The bears are likely to continue pressing their bets on the short-side in the near-term as long as the underlying condition of the index remain as weak as they are today.