How Does Bad Stock Market Breadth Affect You?

[TradeSmith Daily]( How Does Bad Stock Market Breadth Affect You? The stock market just triggered a rare and very bullish signal. Right around Thanksgiving, the S&P 500 quickly dropped 5%-plus in just nine trading days. That move spooked a lot of investors. Some Wall Street analysts pointed out that stock market breadth had been weakening. While the S&P and Nasdaq are up more than 23% so far this year, the number of stocks in the indexes trading above their 50-day moving averages has been trending lower. That’s what market technicians call “bad stock market breadth”. For instance, the average stock in the Nasdaq 100 index is down nearly 17% from the 52-week high price, while the index itself is down only 5.5% from recent highs. Bad market breadth can be a sign of a deeper market decline to come. But the good news is, stocks quickly staged a massive reversal of fortune to the upside. Take a look… During the recent pullback, the percentage of S&P 500 stocks trading above their 10-day moving averages slumped to just 5%, according to analysts at SentimenTrader.com. But then it quickly reversed to the upside, with a staggering 89% of stocks trading back above that short-term moving average just five days later. This is what’s called a breadth thrust. Such a big reversal of fortune is a rare event. And it’s a very bullish one for stock returns going forward. RECOMMENDED LINK [Was this week the beginning of the end?]( If you have ANY exposure to stocks right now… It’s time to prepare for a market moment that could define your wealth for the next decade. A small group of U.S. investors are in line to receive advance notice of the [exact day of the next market crash](. For a limited time, you can see it for yourself, 100% free. [Click here for the exact day stocks will crash in 2021]( Over the last 93 years, a similar breadth thrust signal triggered only 52 other times. And after those previous signals, stock market returns were bullish the vast majority of the time. In fact, three months after past breadth signals, stocks were up 73% of the time and posted median gains of 4.9%. One year later, stocks were higher 81% of the time with 12.3% median gains. Even when this signal didn’t work in the past, the biggest drawdown for stocks over the next year was less than 10%. That’s a lot like the short-term corrections we have experienced over the last year or so. Another Bullish Sign Despite the recent market downdraft, our own TradeSmith Market Outlook has been solidly bullish too. And if you drill down a bit deeper inside the S&P 500 Index, it gives you a great reading on the internal breadth of the market too. In fact, 10 out of the 11 S&P 500 sectors have more stocks in the Green Zone than in the Red right now. And for most sectors, it’s not even close, as you can see below. Seven out of the 11 sectors have 70% or more of their component stocks in the Green Zone. Real Estate (XLRE) and Financials (XLF) are leading the pack right now, with 96.6% and 91% of stocks in the Green Zone, respectively. The lone laggard is the Communication Services Sector (XLC). It currently shows just 26.9% of symbols in the Green Zone, with 53.9% in the Red. The poor performance of the communication sector is most likely due to several large-cap old-timers, including AT&T (T) and Verizon (VZ), that have struggled this year. Both stocks are in the Red Zone and trending lower. RECOMMENDED LINK [Pennsylvania Man Reveals His 1,000% Stock Secret]( This investing expert has found more 1,000% winners than likely any other stock expert. But most people don’t know exactly how he does it. Now, for the first time ever, he’s agreed to share the powerful secret he’s used to find more than forty 1,000% winners. Including the name of his #1 stock for 2022. [Click here for the full story]( Our exclusive Market Outlook tools show me that market breadth is looking good. The vast majority of stocks and sectors remain in a healthy state right now and are trending higher. And it’s usually a good idea to stick with the strongest stocks in leading sectors. Also, we received a great mailbag question concerning our recent articles on [Chinese stocks listed in the U.S.]( The reader asks about trading put options on these stocks. A long put option could be useful as a hedge against more downside in these stocks if you own them. On the other hand, a short put option is a way to earn income by selling the put to open and collecting the premium. But the risk is that if the stock drops lower in price, you could have the stock put to you at a loss. So be careful with that. Enjoy your Thursday, [Keith Kaplan]Keith Kaplan CEO, TradeSmith P.S. This high-level view of the market is giving us some promising signals as 2021 comes to a close. And keeping tabs on the market’s overall health will allow us to react appropriately to whatever comes our way in 2022. If you’d like to get access to our Market Outlook tools — along with a suite of our market health and stock discovery tools — [click here](. Best of TradeSmith The chart below represents the best-performing open positions over the last two years, as recommended by our software. [Download now on the Apple Store]( [Get It On Google Play]( [866.385.2076](tel:+866-385-2076) | support@tradesmith.com ©TradeSmith, LLC. All Rights Reserved. You may not reproduce, modify, copy, sell, publish, distribute, display or otherwise use any portion of the content without the prior written consent of TradeSmith. TradeSmith is not registered as an investment adviser and operates under the publishers’ exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith’s content do not constitute personalized investment advice. 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