The percent of stocks above their moving average is one of the most intuitive market breadth indicators available. It simply measures what percentage of stocks in an index are trading above a key moving average, such as the 50-day or 200-day. This tells you at a glance how many stocks are in uptrends versus downtrends.
What This Indicator Measures
This breadth indicator counts how many stocks are above a specified moving average and expresses it as a percentage of the total. For example, if 400 out of 500 S&P 500 stocks are above their 50-day moving average, the reading would be 80%.
Why it matters: In a healthy bull market, most stocks should be above their moving averages. When this percentage starts declining while the index is still rising, it warns that fewer stocks are participating in the rally.
Common Moving Average Periods
Different moving average periods provide different insights:
Percent Above 200-Day Moving Average
The 200-day moving average defines the long-term trend. Stocks above their 200-day are in long-term uptrends, while stocks below are in long-term downtrends.
- Best for identifying major trend changes
- Slower to react, gives fewer false signals
- Extreme readings are highly significant
Percent Above 50-Day Moving Average
The 50-day moving average represents the intermediate-term trend. This indicator is more responsive than the 200-day version and better for swing trading.
- Good for intermediate-term timing
- More volatile than 200-day version
- Useful for identifying pullback buying opportunities
Percent Above 20-Day Moving Average
The 20-day moving average shows short-term trends. This version is the most volatile and useful for short-term trading.
- Best for short-term traders
- Very sensitive to market swings
- Good for timing entries and exits
How to Interpret Readings
Key Levels for 50-Day Indicator
- Above 80%: Market is very strong, may be overbought short-term
- 60-80%: Healthy bull market conditions
- 40-60%: Neutral, market is mixed
- 20-40%: Market is weak, bearish conditions
- Below 20%: Market is very weak, may be oversold
Extreme Readings
Extreme readings on this indicator are significant:
- Very high readings (above 85-90%): Nearly all stocks are in uptrends. While bullish, this often precedes pullbacks as the market becomes stretched.
- Very low readings (below 15-20%): Nearly all stocks are in downtrends. While bearish, this often occurs near market bottoms when fear is at its peak.
Using This Indicator for Trading
Trend Confirmation
When the market index makes a new high, check if the percent of stocks above their moving average is also high. If 70% or more of stocks are above their 50-day, the rally has broad participation and is more likely to continue.
Spotting Divergences
Like other breadth indicators, divergences between price and this indicator can warn of turns:
Bearish Divergence Example
The S&P 500 makes a new high in April at 4,500. The percent of stocks above their 50-day is 72%. Two months later, the S&P 500 makes another new high at 4,600, but only 58% of stocks are above their 50-day. This divergence warns that fewer stocks are participating in the rally.
Mean Reversion Trading
This indicator oscillates between extremes, making it useful for mean reversion strategies:
- When readings drop below 25%, start looking for buying opportunities
- When readings rise above 75%, consider taking partial profits or tightening stops
- Wait for the indicator to turn before acting (falling below 80% after extreme high, rising above 20% after extreme low)
Sector Analysis
This indicator is available for individual sectors as well as the broad market. Comparing sector readings helps identify rotation:
- Sectors with high readings are leading the market
- Sectors with low readings are lagging
- Watch for sectors where readings are improving or deteriorating relative to the broad market
This ties into sector rotation analysis and can help identify which areas of the market to focus on.
Multiple Timeframe Analysis
Using multiple versions of this indicator together provides a complete picture:
Timeframe Comparison
- 200-day version high, 50-day version falling: Long-term trend is up, but intermediate-term is weakening. Be cautious.
- 200-day version low, 50-day version rising: Long-term trend is down, but intermediate-term is improving. Watch for bottom forming.
- Both high: Strong market across timeframes. Stay long.
- Both low: Weak market across timeframes. Stay defensive.
Combining with Other Indicators
This indicator works well with other breadth tools:
- Advance Decline Line for cumulative breadth
- New Highs vs New Lows for trend leaders
- McClellan Oscillator for momentum
- RSI for price momentum confirmation
Common Mistakes
- Shorting strong markets: Just because the reading is above 80% does not mean you should short. Strong markets can stay overbought for extended periods.
- Buying weak markets too early: Readings can stay below 20% for weeks in bear markets. Wait for signs of improvement.
- Ignoring the trend: This indicator works best when aligned with the primary trend direction.
- Using one timeframe only: Multiple timeframes provide a more complete picture.
Historical Context
Looking at historical readings helps put current readings in perspective:
- At the March 2020 low, only about 2% of S&P 500 stocks were above their 200-day moving average
- During strong bull market phases, readings above 90% can persist for weeks
- Bear markets often see readings stay below 30% for extended periods
Monitor Market Breadth
Pro Trader Dashboard helps you track market breadth indicators alongside your portfolio. Make informed decisions with comprehensive market data.
Summary
The percent of stocks above their moving average is a straightforward yet powerful market breadth indicator. It shows you what percentage of stocks are in uptrends across different timeframes. By tracking this indicator for the 20-day, 50-day, and 200-day moving averages, you can gauge market health and identify potential turning points. Use it alongside other breadth indicators for a complete picture of market conditions.
Ready to learn more? Explore our guides on the Advance Decline Line and market breadth divergences.