Uptrend or Downtrend: Analyzing SPXA200r Indicator

A moving average helps a chart reader see the overall price trend in a stock. Traders widely use the 200d MAs as indicators of long-term trend. For example, if the stock is above / below its 200d MA, it is believed that the stock is in the long-term uptrend / downtrend. We can apply the same logic for a group of stocks via the SPXA200r indicator.

SPXA200r Indicator

SPXA200r is a breadth indicator showing the percentage of S&P 500 stocks above the 200-day moving average. The indicator is considered to be bullish when it is above 50% and bearish below that level. Below is the chart of SPXA200r with the red and green sectors.

Let me show you how I used this indicator in 2018 and 2019.

October – December 2018

The SPXA200r indicator dropped abruptly in October 2018 falling below the 50% level. When it tried to rally back up, it bumped into resistance at roughly 52%-53% and immediately dropped back into the red zone. When December 2018 came, a perfect shorting opportunity was at hand with the following conditions:
1) the indicator was in the red zone – hence, the market was in a downtrend
2) the indicator didn’t bounce when reaching 35% support
3) the indicator dropped below the 35% support

February 2019 – present

After bottoming in December 2018, the market stunned most retail traders with an incredible rally (majority expected doom and gloom instead of new all time highs). Notice how easily the indicator pierced the 50% level in February 2019 and moved into the green sector. Also, notice that the indicator has never really left the green area since then.

Besides, I wanted to highlight another important observation. Notice how the 50% level acted as a support 3 times this year: in March, end of May and August. These bounces created 3 perfect long opportunities since March 2019.

How High Can It Go?

As of today, the SPXA200r indicator is at 75% which acted as a resistance in April and July. How high can it go if it breaks above the 75% resistance? The chart below depicts the SPXA500r and SPX since the start of the current bull market. There are potentially two additional levels of resistance: around 85% and 95%.

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