I have been doing some historical analysis of the percentage of stocks above the 50dma, an indicator that, as I have been tracking it, is pretty reliable in predicting market turns. Stockcharts.com has data only as far back as 2002, which is a shame as I really wanted to see how it behaved fom 2000 on, however the data I have does catch the end of the 2000-2002 bear market. Here we see the Nasdaq, which bottomed in October 2002. Notice that the percentage of stocks above the 50dma bottomed about 3 months earlier, and as the Nasdaq bottomed, the percentage went to a higher low. Again it went to a higher low after the initial rally of late 2002, when the Nasdaq briefly corrected.
On the NYSE it is even more pronounced, as the NYSE composite retested the October low in March of 2003. Each successive low was accompanied by a higher low on the percentage of stocks above the 50dma. While price was going nowhere, the market was gaining internal strength, which resulted in a bg rally going into 2004. This was exactly what the market did when it hit bottom in 2009, and the result was the same.
Next week I will take a look at the period from 2004-2007 to see how this indicator behaves in a bull market.
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