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The stock market has been on a fervent rally since March, rallying by over 65% as of December 2. 1 However, because not all stocks have participated equally, the rally has been described as having “bad breadth.”
However, November’s strong market gain of 18 percentage points has changed the market’s breadth – from bad to good. This performance was supported by two headwinds being removed at the same time: US election uncertainty was resolved, and promising vaccine trials that firmed up the timeline for the distribution of a COVID-19 vaccine acted as the “mint or stick of gum” that the market needed.
In this charting the market, I will showcase how pervasive the change in the market’s breadth has been.
One measure to gauge whether all boats are rising with the tide is to calculate the percentage of firms trading above a technical level, such as a stock’s 200-day moving average. If the S&P 500 Index is notching all-time highs, but only slightly more than half the stocks are trading above their own recent averages, the broad market gains are being powered by only a handful of stocks. This trend occurred in the spring and summer months.
However, as shown below, that summer/spring trend flipped with the November rally. Now, more than 450 stocks in the S&P 500, or 90%, are trading above their respective 200-day moving averages. The closing of the gap between the two-time series plotted below illustrates how more firms are participating in the latest rally.