The Trends They Are A-Changin’

And keep your eyes wide

The chance won’t come again

And don’t speak too soon

For the wheel’s still in spin

And there’s no tellin’ who

That it’s namin’

For the loser now

Will be later to win

For the times they are a-changin’

I don’t think Bob Dylan was talking about stocks when he sang his 1964 classic, The Times They Are A-Changin’. He had social progress on his mind. Still, his words strike a chord when we look at the market today.

Since the first trading day of 2022, it’s been a tough time to be an investor. Stock prices tanked more than 20%, dropping into bear market territory for the second time in 2 years. Bonds were no better, turning in their worst first half performance in memory. Alternative assets like crypto currencies fared even worse, with Bitcoin cratering as much as 70% from its all time highs. Only commodities were able to buck the trend, but even those returns were less impressive when viewed in the context of rampant inflation that’s chipped away at nominal returns.

Well, the times they are a-changin’, and so are the trends.

Stocks had their best month since 2020 in July, and so did bonds. Bitcoin rose by the most this year. It’s still too early to definitively say we’ve seen the bear market bottom, but it’s clear the improvement in equities has been broad. The percentage of S&P 500 stocks above their 50-day moving average is at the highest level since the January 4th peak. That’s quite the shift from mid-June, when the number was more comparable to lows set in February and March of 2020.

An RSI reading above 70 is commonly referred to as ‘overbought’. While that may sound like a bad thing (and in the short-term it often is), weak stocks don’t get overbought – momentum above 70 is actually a sign of strength. And the recent price surge has shown more such strength than any rally in the last year. Nearly 20% of S&P 500 constituents are in overbought territory.

Getting overbought and rising above short-term moving averages is important, but it’s just a first step. There’s still plenty of technical damage to repair before we see new highs in the major indexes, especially when only a few stocks are setting new 52-week highs themselves. By comparison, roughly 15% of members were setting new highs in April, and that’s while the index was falling. A healthier level would be above 20%, like we saw before breadth began to deteriorate in May 2021.

Of course, you can’t set a new 52-week high without first setting new highs on shorter time frames. The list of stocks setting new 6-month highs has plenty of room for improvement but offers a slightly more encouraging view. It’s the best we’ve seen since April.

Bob Dylan certainly saw many of the changes he championed in the 1960s come to fruition. Like his causes, it may take some time to see progress. But should the recent trend improvements continue, we’ll have plenty to celebrate ourselves.

Nothing in this post or on this site is intended as a recommendation or an offer to buy or sell securities. Posts on Means to a Trend are meant for informational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in posts. Please see my Disclosure page for more information.

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Thanks for reading!

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