If you just wanted one good "oscillator" of the stock market, it would be difficult to have a better one than the simple chart seen below showing the percentage of stocks in the S&P 500 trading above their 50 and 200-day moving averages.
You can see for the S&P 500, that when the percentage of stocks that are trading above their 50-day moving average rises to 90%, it's as good as it gets. As you can see (and the same is true of almost all overbought signals), that does not necessarily mean that the overall market is going to turn south. But it is very interesting that as the indices make higher highs, if you see that percentage of stocks trading above their 50-day moving average NOT also make new highs, it is almost always a sign that an overall market correction is coming...sooner or later. Yet, the stronger the current Asset Allocation Model, the more reluctant the correction becomes. But from the chart above, you can see that the new highs made by the S&P 500 since November of last year have not been confirmed by this internal "oscillator."
To view today's complete Weekly Sector Report, click here.
Don Hays & Nicholas Warf
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