Chris Puplava | May 26, 2013 12:30AM ET
Wednesday's selloff proved to change the short-term outlook of the market as indicated by a reversal commonly referred to by technicians as a bearish engulfing pattern. Such a reversal is also corroborated in the loss of short-term bullish momentum as the percentage of stocks within the S&P 500 with a daily MACD buy signal plummeted to 41% from last week’s 75% reading. With that said, the market’s long and intermediate-term momentum still remains bullish as does the overall market trend. Cyclical sectors continue to be market leaders though the defensive health care sector continues to hold on to its leadership mantle.
S&P 500 Member Trend Strength
As shown below, the outlook for the S&P 500 is clearly bullish as more than 60% of stocks in the 500 member-index have bullish short, intermediate, and long-term trends. What is perhaps most important for the S&P 500 is that its long-term health is incredibly strong given nearly 90% of its members have rising long-term moving averages.
Breaking out the 500 stocks within the S&P 500 into their respective sectors and viewing their long (200d SMA) and intermediate trends (50d SMA) shows the cyclical sectors are surfacing as short-term leaders as they possess the strongest short-term breadth (% of members above their 20 day moving average). The most important section of the table below is the 200d SMA column, which sheds light on the market’s long-term health. As seen in the far right columns, you have 89% of the S&P 500 members with rising 200d SMAs and 90.6% of its members above their 200d SMA with nine out of ten sectors in bullish territory and more than 60% of their members having rising 200d SMAs. The two sectors showing the healthiest overall trend are the financial and consumer staples sectors as they have the best long-term and intermediate-term trends.
The defensive sectors were market leaders until recently as there is a rotation away from defensive to more aggressive sectors. Perhaps this is most evident when looking at the utility sector which has 0.5% of its members above their 20d SMA while the energy sector has 79.1%.
The intermediate momentum of the market remains strong and well into bullish territory at a reading of 73%.
Perhaps most significant is that the S&P 500’s long term momentum rests near a one year high as 84% of the 500-member S&P 500 have monthly MACD buy signals.
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