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market_indicators:percent_above_ma [2023/06/07 15:36] jayanthi [Introduction] |
market_indicators:percent_above_ma [2023/09/29 15:03] jayanthi [Conclusions] |
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| ====== Percent Above Moving Average ====== | ====== Percent Above Moving Average ====== | ||
| - | ===== Introduction: Internal Market Strength or Weakness ===== | + | ===== Percentage of Stocks Above a Moving Average: Internal Market Strength or Weakness ===== |
| - | When an index continues to move higher, it would be helpful to understand if there's internal strength in the movement. The percentage of stocks trading above a specific moving average is a market breadth indicator that measures internal strength or weakness in the underlying index. | + | When an index continues to move higher, it would be helpful to understand if there's internal strength behind that movement. The percentage of stocks trading above a specific moving average is a market breadth indicator that can measure the internal strength or weakness in an underlying index. |
| For short-to-medium-term timeframes, it's helpful to look at the percentage of stocks trading above the 50-day moving average. For medium-to-long-term-timeframes, it's best to look at the percentage of stocks trading above the 150-day and 200-day moving averages. You can get trading signals from crosses above/below 50%, overbought/oversold levels, and bullish/bearish divergences. The indicator is available for the Dow, Nasdaq, Nasdaq 100, NYSE, S&P 100, S&P 500, and S&P/TSX Composite. SharpCharts users can plot the percentage of stocks above their 50-day moving average, 150-day moving average or 200-day [[:technical_indicators:moving_averages|moving average]]. A full symbol list is provided at the end of this article. | For short-to-medium-term timeframes, it's helpful to look at the percentage of stocks trading above the 50-day moving average. For medium-to-long-term-timeframes, it's best to look at the percentage of stocks trading above the 150-day and 200-day moving averages. You can get trading signals from crosses above/below 50%, overbought/oversold levels, and bullish/bearish divergences. The indicator is available for the Dow, Nasdaq, Nasdaq 100, NYSE, S&P 100, S&P 500, and S&P/TSX Composite. SharpCharts users can plot the percentage of stocks above their 50-day moving average, 150-day moving average or 200-day [[:technical_indicators:moving_averages|moving average]]. A full symbol list is provided at the end of this article. | ||
| - | ===== Calculation ===== | + | ===== Calculating Percentage Above MA ===== |
| <code> | <code> | ||
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| - | Nasdaq 100 example: 60/100 = .60 or 60% | + | Nasdaq 100 example: 60/100 = 0.60 or 60% |
| - | S&P 500 example: 80/500 = .16 or 16% | + | S&P 500 example: 80/500 = 0.16 or 16% |
| - | Dow Industrials example: 7/30 = .2333 or 23.33% | + | Dow Industrials example: 7/30 = 0.2333 or 23.33% |
| </code> | </code> | ||
| - | The calculation is straightforward: simply divide the number of stocks above their XX-day moving average by the total number of stocks in the underlying index. The Nasdaq 100 example shows 60 stocks above their 50-day moving average and 100 stocks in the index. The percent above their 50-day moving average equals 60%. As the chart below shows, these indicators fluctuate between 0% to 100%, with 50% as the center line. | + | The calculation is straightforward: divide the number of stocks above their XX-day moving average by the total number of stocks in the underlying index. The Nasdaq 100 example shows 60 stocks trading above their 50-day moving average. Since there are 100 stocks in the index, the percent above their 50-day moving average equals 60%. The chart below shows that these indicators fluctuate between 0% to 100%, with 50% as the center line. |
| {{:market_indicators:percent_above_ma:pama-0-ndxexam.png|Percent Above SMA - Example}} | {{:market_indicators:percent_above_ma:pama-0-ndxexam.png|Percent Above SMA - Example}} | ||
| - | ===== Interpretation ===== | + | ===== What Does the Percentage of Stocks Above a Moving Average Tell You? ===== |
| This indicator measures the degree of participation. Breadth is strong when the majority of stocks in an index are trading above a specific moving average. Conversely, breadth is weak when the minority of stocks are trading above a specific moving average. There are at least three ways to use these indicators. First, chartists can obtain a general bias with the overall levels. A bullish bias is present when the indicator is above 50%. This means more than half the stocks in the index are above a particular moving average. A bearish bias is present when below 50%. Second, chartists can look for [[:glossary_o#overbought|overbought]] or oversold levels. These indicators are oscillators that fluctuate between zero and one hundred. With a defined range, chartists can look for overbought levels near the top of the range and oversold levels near the bottom of the range. Third, bullish and bearish divergences can foreshadow a trend change. A bullish divergence occurs when the underlying index moves to a new low and the indicator remains above its prior low. Relative strength in the indicator can sometimes foreshadow a bullish reversal in the index. Conversely, a bearish divergence forms when the underlying index records a higher high and the indicator remains below its prior high. This shows relative weakness in the indicator that can sometimes foreshadow a bearish reversal in the index. | This indicator measures the degree of participation. Breadth is strong when the majority of stocks in an index are trading above a specific moving average. Conversely, breadth is weak when the minority of stocks are trading above a specific moving average. There are at least three ways to use these indicators. First, chartists can obtain a general bias with the overall levels. A bullish bias is present when the indicator is above 50%. This means more than half the stocks in the index are above a particular moving average. A bearish bias is present when below 50%. Second, chartists can look for [[:glossary_o#overbought|overbought]] or oversold levels. These indicators are oscillators that fluctuate between zero and one hundred. With a defined range, chartists can look for overbought levels near the top of the range and oversold levels near the bottom of the range. Third, bullish and bearish divergences can foreshadow a trend change. A bullish divergence occurs when the underlying index moves to a new low and the indicator remains above its prior low. Relative strength in the indicator can sometimes foreshadow a bullish reversal in the index. Conversely, a bearish divergence forms when the underlying index records a higher high and the indicator remains below its prior high. This shows relative weakness in the indicator that can sometimes foreshadow a bearish reversal in the index. | ||
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| {{:market_indicators:percent_above_ma:pama-5-tsx50.png|Percent Above SMA - Chart 5}} | {{:market_indicators:percent_above_ma:pama-5-tsx50.png|Percent Above SMA - Chart 5}} | ||
| - | ===== Conclusions ===== | + | ===== The Bottom Line ===== |
| - | The percentage of stocks above a specific moving average is a breadth indicator that measures the degree of participation. Participation would be deemed relatively weak if the S&P 500 moved above its 50-day moving average and only 40% of stocks were above their 50-day moving average. Conversely, participation would be deemed strong if the S&P 500 moved above its 50-day moving average and 60% or more of its components were also above their 50-day moving average. In addition to absolute levels, chartists can analyze the directional movement of the indicator. Breadth is weakening when the indicator falls and strengthening when the indicator rises. A rising market and falling indicator would raise suspicions on underlying weakness. Similarly, a falling market and rising indicator would suggest underlying strength that could foreshadow a bullish reversal. As with all indicators, it is important to confirm or refute findings with other [[:technical_indicators|indicators]] and analysis. | + | The percentage of stocks above a specific moving average is a breadth indicator that measures the degree of participation. Participation would be deemed relatively weak if the S&P 500 moved above its 50-day moving average and only 40% of stocks were above their 50-day moving average. Conversely, participation would be deemed strong if the S&P 500 moved above its 50-day moving average and 60% or more of its components were also above their 50-day moving average. In addition to absolute levels, chartists can analyze the directional movement of the indicator. Breadth is weakening when the indicator falls and strengthening when the indicator rises. A rising market and falling indicator would raise suspicions of underlying weakness. Similarly, a falling market and rising indicator suggest underlying strength that could foreshadow a bullish reversal. As with all indicators, it is important to confirm or refute findings with other [[:technical_indicators|indicators]] and analysis. |
| ===== SharpCharts ===== | ===== SharpCharts ===== | ||