After a six-week rally, more stocks and exchange traded funds are crossing over technical trend lines. Interestingly, the number of S&P 500 stocks that stepped over their 50-day moving averages has declined, but this was actually a good sign this time around.
According to the Bespoke Investment Group, the percentage of stocks in the S&P 500 that are above their 50-day moving averages has slightly dipped to 70%.
However, the research firm points out that defensive sectors were sold off as the market rallied – investors would typically lower their positions in conservative plays and take on riskier assets during a bullish rally. [Sector ETF Rotation Points to Risk-On]
“As long as the cyclicals are leading things higher while the defensives are struggling, bulls can sleep well at night,” Bespoke said.
Cyclical sectors, except consumer discretionary, show an average 70% to 80% of company stocks above their 50-day moving averages, with 89% out of the energy sector and 85% from financials leading the markets.
In contrast, 58% of health care stocks and 54% of consumer staples are over their 50-days. Only 13% of utilities are now above their short-term trends.
Source: Bespoke Investment Group
For more information on our trend following strategy, visit our trend following category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.