Chart 1: Despite new highs, breadth continues to bearishly diverge
Just a quick update on one of my favorite indicators for the stock market – the percentage of stocks within the S&P 500 trading above the 200-day moving average. The indicator continues to flash a warning signal, something I have discussed on my blog for the last few months. So far the market has turned a cold shoulder to ongoing bearish divergence as it continues to tear higher into record territory.
Chart 2: The stock market has been overbought for the whole of 2013
And while bearish divergence is in progress, the same indicator can also be looked at from another perspective – either an overbought or an oversold level. As we can clearly see in Chart 2, the overall stock market breadth has remained overbought for the whole of 2013. Breadth isn’t the only group of indicators flashing overbought levels, as technical indicators, as well as sentiment, are also flashing warning signals.