It’s Time to Be Aggressive in the Stock Market

To analyze stock market indexes, it helps to look beyond price. Market breadth is the way to do that.

Breadth indicators count the number of stocks that pass a test. For example, the test might be whether a stock closed higher for the day. That’s done with the advance-decline line (ADL). If more stocks are up than down, the ADL moves higher.

The chart below shows the results of a more sophisticated breadth tool. Green bars show when most of stocks in the S&P 500 Index are on MACD buy signals.

Stock Market Indexes

MACD is a popular momentum indicator. It’s a slow-moving indicator using 26 weeks of data. That quality is ideal for long-term market analysis.

By moving slowly, there’s little chance of a quick reversal. It takes time for a sell signal to develop. And that’s good news for investors.

Looking at breadth of the MACD, we learn whether most of the stocks in the index are in long-term uptrends or downtrends. Knowing the broad trend like this can improve our long-term results.

When this indicator is bullish, sell-offs are relatively minor. The index has never fallen more than 17% when at least 50% of the stocks in it are on MACD buy signals. Now, 17% is a big decline. But it’s better than the declines of more than 50% that occurred when the index was bearish.

We are on a new buy signal. MACD breadth turned bullish on June 8. This reverses a bear market signal that came near the top of the stock market in January.

This breadth indicator buy signal means investors should be aggressive. There is little risk of a steep market sell-off. The S&P 500 should reach new highs soon.

So, now is the time to buy tech stocks and other fast movers. They offer the most reward in a low-risk stock market.


Michael Carr, CMT

Editor, Peak Velocity Trader

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