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Thanks to a subscriber for reminding me of this. It’s the spread between the number of S&P500 stocks 20%+ off their 52wk lows minus the number of components 20%+ off their 52wk highs. Positive readings reflect a bullish environment. That’s been the case for nearly a year now…

One simple but effective means of trading this indicator looks for five consecutive positive readings to trigger a buy signal and five negative readings for a sell signal. Track record begins when we started collecting this data in 2012…

10/10/12 Buy SPX 1432 +31.7%
10/17/14 Sell SPX 1886 -4.0%
10/27/14 Buy SPX 1961 +1.3%
08/27/15 Sell SPX 1987 -2.5%
03/23/16 Buy SPX 2036 +38.0%
10/17/18 Sell SPX 2809 +1.1%
02/19/19 Buy SPX 2779 +12.6%
03/04/20 Sell SPX 3130 +10.6%
04/16/20 Buy SPX 2799 +56.6%
02/25/22 Sell SPX 4384 +10.4%
01/18/23 Buy SPX 3928 -0.2%
03/14/23 Sell SPX 3920 -5.9%
04/17/23 Buy SPX 4151 -0.4%
05/15/23 Sell SPX 4136 -3.9%
06/09/23 Buy SPX 4298 +0.2%
10/06/23 Sell SPX 4308 -6.4%
12/07/23 Buy SPX 4585

Once this spread has been in bullish territory for 6+ months, the first negative reading can be a major warning sign for stocks. But because stocks are usually oversold when this happens, the negative reading needs confirmation. If the spread continues to deteriorate over the following week then it’s usually a bad sign for stocks over the next month…

20% Spread Negative First Time in 6+ Months,
Spread Still Negative & <-10% One Week Later
03/05/20… SPX -17.7% one month later
10/18/18… SPX -1.2% one month later
08/28/15… SPX -5.3% one month later
08/11/11… SPX -0.9% one month later
07/02/02… SPX -6.7% one month later
09/23/99… SPX +1.7% one month later
08/11/98… SPX -8.3% one month later
04/06/94… SPX -0.1% one month later

As a reminder, this data is updated daily in the DATA section of the website. A link to the latest CSV file is also included in our email.

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