The 5,000 level for the S & P 500 seems like a foregone conclusion given the strength of mega-cap growth stocks, the renewed fervor for any name related to AI, and emerging strength in other sectors including health care and financials. A strong November and December were followed by an even stronger January, and this earnings season has propelled leading names like Nvdia and Meta to even greater heights. But as much as a market can advance due to the strength of leadership names, market breadth measures tell us more about all the other stocks in our major indexes. This technique is often described using military terminology: the generals are doing great, but what about the infantry? This chart shows the percent of S & P 500 members above their 200-day moving average (second panel) as well as the percent of S & P 500 members above their 50-day moving average (bottom panel). Generally speaking, the percent of stocks above the 50-day moving average represents more of a short-term gauge, because when a stock is still in a primary uptrend but experiences a pullback it will would hit this moving average first. Conversely, the percent of stocks above the 200-day moving average is a better long-term gauge, as it takes a much more significant drawdown for a stock to break down below this long-term trend barometer. The S & P 500 itself (top panel) is well above its own moving averages, speaking to the strength of this market environment off the October 2023 low. Note how both the percent of stocks above the 50-day and 200-day moving averages pushed above the 50% level in mid-November, confirming that many stocks were experiencing a similar rise. By mid-December, however, we saw about 90% of S & P 500 stocks above their 50-day moving average (pink shaded area), suggesting that almost everything was in a confirmed uptrend. Lack of breadth support So as the S & P 500 tests 5000 this week, how confident should we be about further upside for stocks? I’ve placed red vertical lines on the three previous occurrences where we saw 90% of stocks above their 50-day moving average before the indicator moved back below 50%. This would indicate that about 40% of the S & P 500 members had broken below their own 50-day moving average, in other words, a serious lack of breadth support. In each of these three instances, the S & P 500 moved even lower before eventually finding its footing and bouncing back higher. One key difference this time around is that the S & P 500 itself is moving higher. In those other three instances, the benchmark was actually moving lower as the breadth readings were deteriorating. But the message of the chart remains the same. If we see less than 50% of S & P 500 members remaining above their 50-day moving average, further upside above the key 5,000 level seems like an unlikely scenario before a more meaningful pullback for stocks. -David Keller https://www.marketmisbehavior.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.