When a Rising Tide Lifts All Boats

By Charlie Bilello

19 Apr 2021


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96.8% of stocks in the S&P 500 are above their 200-day moving average. This is the highest percentage ever.

Source: StockCharts.com (Data from Dec 2001)

When this many stocks are participating in a rising market, many consider it a sign of strength (“good breadth”) and a bullish indicator for the future.

What does the evidence suggest? Let’s take a look…

With data going back to December 2001, the top 2/5% of readings (highest % above 200-day MA) have shown slight underperformance in the following 1 month through 1 year periods and some outperformance in future 3 and 5 year periods. Overall, a rising tide that lifts all boats does not appear to be highly predictive one way or another.

What about the opposite scenario, where a tidal wave sinks all boats and few stocks remain above their 200-day moving average?

Interestingly, we find strong outperformance in all future periods, adding credence to the “buy low” part of the “buy low, sell high” adage.

Is there anything unique about today’s reading compared to past extremes?

Yes. Prior to today the two highest 200-day breadth readings occurred in January 2004 (95.4%) and October 2009 (96%).

Both of these instances followed rallies after deep bear markets (2000-2002, 2007-2009) and at the time the S&P 500 was still more than 20% below its prior high.

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Today we have a market that is not only at an all-time high but one that has been hitting new highs every year since 2013 and has already done so 23 times this year alone. This makes any comparisons to the past much more difficult.

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Following the extreme readings in 2004 and 2009, we saw sideways to higher action over the next year.

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What will we see today?

No one knows. Every time is different and there are only probabilities in markets, never certainties. But if history is a guide, a rising tide that lifts all boats is not the overtly bullish indicator that many claim it to be. In fact, the opposite situation (extremely weak breadth) has been a much more favorable entry point in the past. When all boats are sunk and all hope seems lost, intrepid investors willing to go against the tide have fared quite well.


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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.

About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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