This Is the Only Chart You Need to Watch to Know When the Market is Going to Start Buying or Selling

I’m going to take just a minute to give you access to the only chart you need to watch to identify market tops and bottoms.

What we’ve got below is a simple chart of the percent of companies in the S&P 500 that are trading above their respective 50-day moving average

Right now, the percent of companies above their 50-day moving average is getting ready to break above 90%, and that’s not a good thing.

We’ve all heard of “overbought markets,” and well, this indicator is the best at pinpointing when a market has become overbought.

How good?

The three previous readings of 90% or higher in the last year (circled in red) all preceded 10-20% drops in the S&P 500.

Readings at or below 10%, you guessed it, they happened just before the market rallied 10-20%. The last reading on October 26 tipped you off to a 13% bull run in stocks that we’re still seeing unfold.

This is literally the only chart you need to watch to know when the market is going to start buying or selling.

Here’s What It’s Telling You Today: Like the VIX and other indicators, the percentage of stocks above their 50-day indicator is warning that we are going to have some selling over the next few weeks.

I forecast that the reading will drop slightly this week, as we make our way through the Fed announcement on Wednesday. That means we could see readings around 75 by week’s end.

But with its positive trend, that 75 will then have further room to move to the ultimate reading we will be watching for, 90, which will signal that it is time to start taking profits from the market as we’ll expect at least a 5-10% correction.

Of course, I’ll notify you when that happens.

About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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