The S&P 500 Index hit a new record high last week. However, we’ve noticed that under the surface fewer stocks have been participating. Just 15% of the stocks in the index hit a new one-month high along with the benchmark on June 24. For the first time since December of 1999, a record closing high occurred with less than half of the stocks in the index closing above their 50-day moving average. The last few years have taught us that large technology stocks alone are capable of powering the S&P 500 to new highs. However, a healthier and more sustainable trend typically has stronger participation like what we saw at the beginning of the year when 30%-40% of the indexes were hitting highs. Now, just 15% of the stocks in the index are hitting highs. No guarantees, but the good news is that we’re heading into July which has historically been one of the better months for the market.
The Pause That Refreshes
The market rally that we saw at the end of 2020 and into 2021 was very broad-based. The focus being narrowed down to larger companies is something that has happened just recently. The chart shown in this video shows how the companies that have been doing the best for the first six months of the year, did the worst in June and the stocks that did the worst in the first six months of the year did the best in June. That is a very small sample size but could be an indication that the market is topping and the rallies are getting narrower. Could this be an indication of a pause that refreshes? Things don’t always go up and there comes a time when you have to have a little give and take with certain companies rallying, to push the market higher. Companies that do well for so long have to take a breather and when they do, something else comes in to make the market high. If you just had one narrow section of the market rallying, that would be a cause for concern. We absolutely saw that in the last few years with very few large companies making up almost all the gains. For the first time in years, at the beginning of this year, we saw a very broad-based rally. Our indicators tell us that that seems to be shifting. For example, on the last trading day of the year, the technology sector of the market was up nearly 1%. On that same day, there were two and a half times as many stocks down as there were stocks up. That was a very narrow rally and shows that large companies can impact the total market. We need to see if this is a pause that refreshes and if it is, we should start seeing this trend flip in the month of July. July is traditionally a very strong month for markets so we are watching to see if the market will broaden back out. Right now, less than half of the sub-sectors in the S&P 500 are above their 50-day moving average. The 50-day moving average is a very short-term trend indicator that Adam Vansant, Wealth Consultant at Fi Plan Partners, tracks weekly. If we see that flip quickly, it will be a good indication that the market is broadening back out. There’s lots of data to look at when it comes to this topic and the market. We could see fireworks as it could be an explosion to the upside. It will be interesting to see how this turns out as we keep an eye on the market to see if June’s market performance was the beginning of a trend and July’s market performance supports that trend, or if June was the anomaly.
Each week, we report what the short-term resistance and support levels are for the S&P 500. The short-term levels usually change each week. Since we are at the mid-year point, we thought it was a good opportunity to report on an intermediate-term, which reflects more of a month-to-month time frame. The resistance level for the S&P 500, from an intermediate-term standpoint is 4,400 with a support level of 4,200. We have continued the conversation each week about the market building a base price for the months to come. When looking at the data to support the idea of a base being formed, we look at the 50-day moving average for the S&P 500, which is currently sitting at the same price as the previously stated support level of 4,200. To get more understanding of moving day averages, what they mean, and why they are important, go back and watch this past week’s educational vlog by Adam Vansant. He goes over how these averages coincide with certain resistance levels, support levels, and technical analysis.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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