Short term breadth suggests a consolidation

Key points:

• S&P 500 members above the 10-day average have fallen by almost 45%
• A sharp decline in price trends when the S&P 500 hovers near a high suggests a consolidation

Short-term price trends suggest the market is losing internal momentum

The percentage of S&P 500 members above the 10-day moving average has fallen from 87.48% to 42.51% over the trailing 21-day period. At the same time, the S&P 500 index is hovering within 0.28% of a new high.

Let's assess the outlook for the S&P 500 when the percentage of members above the 10-day average falls by 44% or more, and the S&P 500 index is within 1% of a 252-day high.

Similar signals preceded short-term consolidations

This signal has triggered 14 other times over the past 93 years. After the others, future returns and win rates were weak in the short term. However, the 3 and 6-month time frames suggest the short-term outlook is nothing more than healthy consolidation.  

What the research tells us...

When the percentage of members above the 10-day moving average falls by a significant amount as the S&P 500 hovers just below a high, the index loses internal momentum. Similar setups to what we're seeing now have preceded consolidations in the short term. However, the outlook suggests a timeout that refreshes a bullish medium and long-term trend backdrop.