The percentage of stocks trading above their moving average is a powerful market breadth indicator. It shows how many stocks are participating in a trend, helping traders identify overbought and oversold conditions and gauge the strength of market moves.
What is Percent Above Moving Average?
This indicator calculates what percentage of stocks in an index or market are trading above a specific moving average (typically the 50-day or 200-day). It ranges from 0% to 100%.
Example: If 350 out of 500 S&P 500 stocks are trading above their 50-day moving average, the indicator would read 70%.
Common Timeframes
Percent Above 20-Day MA
- Short-term market condition
- More volatile, frequent signals
- Good for swing trading
- Reacts quickly to market changes
Percent Above 50-Day MA
- Intermediate-term market condition
- Most commonly watched
- Balances sensitivity and reliability
- Good for overall market health
Percent Above 200-Day MA
- Long-term market condition
- Less volatile, smoother
- Identifies major trend changes
- Good for bull/bear market analysis
Interpreting the Indicator
Overbought Conditions
- Above 70-80%: Market getting overbought
- Above 90%: Extremely overbought
- Not immediate sell signal in uptrends
- Shows broad participation (healthy)
Overbought Example
The S&P 500 has rallied strongly, and now 85% of stocks are above their 50-day MA.
This overbought reading shows broad participation in the rally.
However, it also suggests limited room for more stocks to join the advance.
A pullback may be coming, though the strong breadth is bullish longer-term.
Oversold Conditions
- Below 30%: Market getting oversold
- Below 10-20%: Extremely oversold
- Potential buying opportunity
- Shows widespread weakness
Neutral Zone
- 40-60%: Market in balance
- No strong directional bias
- Wait for move to extremes
- Or use other indicators for direction
Warning: Overbought Does Not Mean Sell
In strong bull markets, the percent above 50-day MA can stay overbought (above 70%) for extended periods. Selling just because the indicator is high can cause you to miss major uptrends. Use overbought readings as caution signals, not automatic sell signals.
Trading Strategies
Mean Reversion Strategy
- Buy when indicator drops below 20-30%
- Sell or reduce exposure when above 80%
- Works best in range-bound markets
- Less effective in strong trends
Breadth Thrust Strategy
- Look for rapid expansion from oversold levels
- Move from below 20% to above 60% quickly
- Signals strong buying interest
- Often marks start of new uptrends
Trend Confirmation Strategy
- In uptrends, buy pullbacks when indicator reaches 40-50%
- In downtrends, sell bounces when indicator reaches 50-60%
- Use longer-term indicator for trend direction
- Use shorter-term indicator for entry timing
Divergences
Bearish Divergence
- Market makes new highs
- Percent above MA makes lower high
- Fewer stocks participating in rally
- Warning sign for bulls
Bullish Divergence
- Market makes new lows
- Percent above MA makes higher low
- Selling pressure diminishing
- Potential bottom forming
Sector Analysis
Apply this indicator to individual sectors:
- Compare sector readings to overall market
- Strong sectors: Higher percent above MA than market
- Weak sectors: Lower percent above MA than market
- Rotate into sectors showing relative strength
Multiple Timeframe Analysis
Use different moving average periods together:
- % above 200-day high, % above 50-day high: Strong bull market
- % above 200-day high, % above 50-day low: Pullback in uptrend
- % above 200-day low, % above 50-day high: Bear market rally
- % above 200-day low, % above 50-day low: Strong bear market
Combining with Other Indicators
- Advance/decline line: Confirm breadth signals
- New highs/new lows: Additional breadth data
- VIX: Sentiment confirmation at extremes
- Price support/resistance: Entry timing
Historical Reference Points
- Major bottoms: Often see % above 50-day below 10-15%
- Bull market peaks: % above 50-day may exceed 90%
- Corrections: % above 50-day typically drops to 30-40%
- Bear markets: % above 200-day below 50% for extended periods
Monitor Market Breadth
Pro Trader Dashboard helps you track how market conditions affect your portfolio.
Summary
The percentage of stocks above their moving average is a simple but powerful breadth indicator. High readings indicate broad market strength but also potential overbought conditions. Low readings indicate widespread weakness but also potential oversold buying opportunities. Use this indicator alongside price action and other breadth measures to gauge market health and identify potential turning points.
Learn more: Market Breadth Indicators and Bullish Percent Index.