Never Have So Many Stocks Been So Stretched Above Their 200 Day Moving Average

This article was originally posted at Quantifiable Edges on September 16, 2009.

Near the end of August I discussed that some of the breadth measures tracked by Worden were near all-time highs. This situation corrected itself as the market embarked on a brief selloff. Tonight two of their indicators actually registered their highest readings ever. These are T2109 and T21111 which track the number of stocks 1 and 2 standard deviations above their 200-day moving averages. Below is a long-term chart of T21111 with full history of the indicator going back to 1986.

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I marked on the chart the 4 other instances that came close to the current reading. What you may notice is that these spikes were generally brief. Every case was followed by at least a mild selloff that worked off the severely overbought conditions. In no case did the extreme spike mark the end to the bull market that created it. It’s dangerous to read too much into only 4 instances, but a short-term pullback does seem reasonable. The current reading does not suggest a long-term top, though.

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