With the S&P 500 teetering below its vital 5,000 mark for the first time since February, investors are grappling with whether this is a brief respite or the start of a deeper correction. LA News Center reveals an intriguing indicator that suggests we may not be out of the woods yet.
S&P 500: A Delicate Balance
The 5050 level has been a critical pivot for the S&P 500. Staying above it could have eased concerns, but the index’s recent descent below that support and the RSI’s (relative strength index) slide below a crucial 40 level paint an ominous picture, reminiscent of the protracted decline from July to August 2023.
Assessing Weakness through Market Breadth
Market breadth analysis sheds light on the participation of individual stocks within an index. One such indicator is the bullish percent index, based on point & figure charts (PF). By showcasing the percentage of stocks exhibiting a bullish PF structure, it can provide valuable insights.
Bullish Percent Index: A Tale of Tops and Bottoms
Green Zones: Market Bottoms
When the bullish percent index ventures above 70% or below 30%, it is particularly significant, as these levels often signal market turning points. Looking back, the indicator’s ascent above 30% in October 2022, March 2023, and October 2023 coincided with major market lows.
Red Zones: Market Tops
Conversely, the bearish zone below 70% generally indicates a breakdown in individual stocks, often translating into a decline for major benchmarks. Notably, the S&P 500 bullish percent index returned to this downside territory earlier this month, implying a market top.
Current Trend: “Underneath the Hood” Decline
With the bullish percent index effectively below the 50% threshold, the likelihood of a more pronounced correction in the S&P 500 intensifies. Historically, a drop below 30% has often preceded significant market lows.
Patience and Caution: Navigating the Pullback
Amidst the S&P 500 and Nasdaq 100’s recovery since October 2023, it is tempting to view all pullbacks as opportunities. However, as this correction evolves, investors seeking actionable buy signals may be wise to exercise patience and restraint.
Disclaimer: This article is provided for informational purposes only and should not be construed as financial, investment, tax, or legal advice. Always seek professional counsel before making any financial decisions.
