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US Stocks Remain in 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. Unfortunately, breadth has not been as strong across the rest of the US stock market. Small and Mid-caps continue to lag behind their larger-cap counterparts. Market conditions like this support the basis for a stock picker’s market environment.

Active investment strategies can help traders and investors better navigate an increasingly volatile and choppy trading range market. Stock and sector selections may decide if investors make or lose money this year. Continue to focus on sectors and stocks with positive breath and intermediate-to-longer-term uptrends.


Historically, business cycles and stock market cycles are highly correlated. S&P sectors have economic drivers and will perform differently at various stages of their business cycle. Individual companies also will perform differently at different 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. It continues into this year with distinct winners and losers.


Another metric that measures the internal health of the stock market is market breadth. Market breadth analysis remains a decisive factor that can help uncover 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 stock markets. Broad market participation is one of the hallmarks of a robust and longer-lasting rally.


Advancing issues minus declining issues and other market breadth indicators can help evaluate if investors are actively participating in the 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 solidify a market bottom (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 – 201 stocks (40.2%) are trading above their 50-day and 200-day moving averages.

MID – 142 stocks (35.5%) are trading above their 50-day and 200-day moving averages.

SML – 146 stocks (24.3%) are trading above their 50-day and 200-day moving averages.


The above statistics suggest investors continue to favor the safety of the large-cap SPX index, evidenced by 40.2% of SPX stocks trading above their respective 50-day and 200-day moving averages.


If the numbers improve above 50%, this further helps to reaffirm the Oct 2022 bottom (3,491.58), leading to SPX possibly retesting the all-time high (4,818.62 – 1/4/22) over time.


The S&P Mid-cap and S&P Small-cap show some improvements at 35.5%, and 24.3% of stocks are trading above their respective 50-day and 200-day moving averages from the previous month. However, the numbers need to increase to signal investors returning to these two stock markets.

Remember, near a pivotal market bottom into a sustainable recovery, small and mid-cap stocks tend to outperform their larger counterparts, at least on a relative basis.


Until the rally broadens out to other stock markets, it is best to be selective and focus on stocks that have well-defined technical bases and preferably trade above their 50-day and 200-day moving averages.


Attached are the 204 SPX stocks trading above the 50-day and 200-day moving averages ranked by 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

Source: Chart courtesy of StockCharts.com


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