A Declining Number Of Stocks Are Outperforming The S&P 500

Below is one of the many charts from this week’s Thrasher Analytics letter that was sent to subscribers on Sunday.

One way we can evaluate the health of the market through the lens of market breadth is by evaluating the number of stocks that are outperforming the broad market. Many technicians will use popular methods of breadth indicators like advance-decline lines, % above moving averages, new highs, etc. And these are all excellent tools and ones I personally use quite often as well. But I believe it’s also important to not only recognize the trends of individual stocks but also their relative performance.

Below is a smoothed average of the percent of stocks that are outperforming the S&P 500. In the fall of 2023, the trend in outperformance had been improving and breached 50% when the S&P 500 made its final low. Then to kick off the new year it was all about that bass FAAMG as these handful of stocks carried the market on their backs for the bulk of Q1 and Q2. We then had a period of strong improvement at the start of the summer but that reversed once the Index peaked in August and the average has been steadily declining since then. The 20-day average of outperformance now sits at a multi-week low as fewer and fewer stocks are able to keep up with the performance of the SPX. Like all measures of breadth, a condition can persist for an unknown period of time and can be resolved one of two ways, improvement in the data like we saw during the summer or a ‘catch down’ by the Index like we saw at the start of 2022 when breadth data looked horrible, and the broad market eventually responded by correcting lower.

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