Chart of the Day - Friday, August 7th, 2020

Another look at breadth, using % stocks >50-d or 200-d. Poor participation + divergences hasn’t stopped a 4-mo rally back to ATHs. This is nothing new. Divergences can last days or a year. Markets can peak with or without them, on 'good breadth' or bad. In real time, worthless pic.twitter.com/QI1EKqqzPY

— ukarlewitz (@ukarlewitz) August 7, 2020

Today’s Chart of the Day was shared on Twitter by  Urban Carmel (@ukarlewitz). It's a chart of the S&P 500 over the past 12 years. The S&P 500 has been drifting higher while the percentage of stocks above their 50 and 200-day moving averages has fallen. These breadth divergences have caused some debate among analysts that the market is due for a decline. As you can see, most significant declines have been preceded by breadth divergences. But, not all breadth divergences have led to significant declines. As Urban reminds us, divergences can persist for months or even years while the market grinds higher. These are simply potential divergences until price confirms.