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Remains a Stock Picker's Market Environment

The strong performance in mega-cap technology names has been the primary driver of the S&P 500 Index, Nasdaq Composite Index, and NDX 100 Index. Small and Mid-caps continue to lag behind their larger-cap counterparts. Although market breadth has improved over the past few months, it remains a selective market environment and is best suited for stock pickers.


Active investment strategies can help traders and investors navigate a volatile and choppy trading range market. Stock and sector selections may decide if investors make or lose money. Continue to focus on sectors and stocks with positive breath, relative strength, and solid intermediate-to-longer-term uptrends.


Business cycles and stock market cycles are highly correlated. Different S&P sectors perform differently at various stages of their business cycle. Individual companies also perform differently at various phases of their corporate cycles. The key to outperformance remains the same – stay ahead of changing economic conditions and buy the right sectors and stocks.

With fewer sectors to select from versus individual stocks, sector selection requires less due diligence, allows for better diversification, and minimizes inherent stock-specific risks. Sector ETFs have become the investment vehicle of choice for many investors.

Academic and professional studies suggest the difference in annual returns between the best and worst-performing sectors in the S&P 500 Index can exceed 30% over the long term. The difference in returns of the top and bottom-performing sectors each year can dramatically impact the overall returns of an investment portfolio.

Last year showed a clear distinction between the winning and losing sectors, as evidenced by the year-to-date performances of the S&P sectors. This trend continues this year with distinct winners and losers.


Another factor critical to successful trading and investing is the overall health of the stock market. Market breadth analysis helps determine the sustainability and duration of a stock market rally.


If the October 2022 low is a pivotal stock market bottom, then breadth should expand across different sectors and stock markets. Broad market participation is one of the hallmarks of a robust and longer-lasting rally.


Many investors also believe a top-down analysis (macro) and bottom-up analysis (individual stocks) are needed to confirm stock market rallies.


The number of stocks and the percentage of stocks trading above their respective 50-day and 200-day ma moving averages can also identify stocks trading in bullish intermediate-to-long-term uptrends. The greater the number of stocks trading in uptrends can help solidify a market bottom (i.e., Oct 2022 lows) and sustain the bull rally.


Historically, when more than half of the stocks in a stock market index are trading above their respective 50-day and 200-day moving averages, investors are broadly participating in the rally, prolonging the bull trend.


Enclosed are three (3) US stock market indexes, including the S&P 500 Index (SPX), S&P 400 Mid-cap Index (MID), and S&P 600 (SML), summarizing the number and percentage of stocks currently trading above their 50-day and 200-day moving averages.


SPX – 241 stocks (48.2%) are trading above their 50-day and 200-day moving averages.

MID – 196 stocks (49.0%) are trading above their 50-day and 200-day moving averages.

SML – 272 stocks (45.3%) are trading above their 50-day and 200-day moving averages.


The above statistics suggest dramatic improvements from recent months, as more US stocks participate in the rally. Investors continue to favor the safety of the large and mid-cap indexes, as evidenced by 48.2% of SPX stocks and 49.0% of MID stocks trading above their respective 50-day and 200-day moving averages.


The two larger market-cap indexes near the 50% threshold, or toward a level that can solidify the Oct 2022 bottom (3,491.58) and prompts the next SPX rally toward all-time highs (4,818.62 – 1/4/22).


The S&P Small-cap Index (SML) has shown remarkable improvements, nearly doubling the number of stocks trading above their respective 50-day and 200-day moving averages from mid-May 2023.

Rebounding from a pivotal market bottom, small and mid-cap stocks tend to outperform their larger counterparts, at least on a relative basis. Until the rally broadens to the small-to-mid-cap markets, it is best to remain selective and focus on large-cap stocks trading in a well-defined technical uptrend, preferably above their 50-day and 200-day moving averages.


Attached are the 241 SPX stocks trading above the 50-day and 200-day moving averages sorted by sectors and SCTR scores.


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com


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