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Intermediate-Time period Participation Ranges Are Very Overbought, and They Are Weak Lengthy-Time period | DecisionPoint

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Once we talk about participation we’re referring to the extra particular and correct evaluation of breadth accessible with the Golden Cross and Silver Cross Indexes. The venerable and extensively identified Golden Cross is when the 50-day transferring common of a value index crosses up by way of the 200-day transferring common, which indicators a shift from long-term bearishness to long-term bullishness for the value index. (Be aware: We use exponential transferring averages – EMAs.)

Taking this one step additional, we now have developed the Golden Cross Index, which is the share of shares in a given index which have a Golden Cross. The chart beneath exhibits the ETFs for the S&P 500 Giant-Cap, S&P 400 Mid-Cap, and S&P 600 Small-Cap Indexes with their respective Golden Cross Indexes (GCI). Whereas the GCIs are all nicely above the bull market degree of fifty%, they’re nicely beneath their bull market ranges in 2021 of above 90%, although their value indexes are at or close to new, all-time highs. Whereas they might proceed to enhance, we should take it as a unfavorable signal that long-term participation is so poor.

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Being a long-term indicator, the slower, extra deliberate tempo of the GCI doesn’t apply nicely to shorter time frames. To assist with this we developed the Silver Cross Index (SCI), which is the share of shares in a given index whose 20-day transferring common has crossed up by way of their 50-day transferring common (which we named the Silver Cross). The SCI exhibits the extent of participation within the intermediate-term.

Here’s a chart of the three S&P Indexes with their respective SCIs. We word that each one the SCIs are within the mid to excessive eighties, which is close to the highest of their vary, and is the overbought degree for the final three years. As a common rule SCIs don’t linger at these ranges, and we must always anticipate to see them flip down quickly. We are able to observe that costs do not all the time comply with the SCIs down, however it’s dangerous to imagine in any other case.

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Conclusion: Participation in the long run is weak, and it’s overbought within the intermediate time period. In our opinion the market is weak for a correction.


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Carl Swenlin

Concerning the creator:
Carl Swenlin is a veteran technical analyst who has been actively engaged in market evaluation since 1981. A pioneer within the creation of on-line technical sources, he was president and founding father of DecisionPoint.com, one of many premier market timing and technical evaluation web sites on the net. DecisionPoint focuses on inventory market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and weblog contributor.
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