The 5,000 level for the S&P 500 seems like a foregone conclusion given the strength of mega-cap growth stocks, renewed fervor for any AI-related name, and emerging strength in other sectors, including healthcare and financials. A strong November and December were followed by an even stronger January, and this earnings season has pushed leading names like Nvdia and Meta to even higher heights. But as much as a market can advance on the strength of leading names, measures of market breadth tell us more about all the other stocks in our major indexes. This technique is often described using military terminology: generals do great, but what about the infantry? This chart shows the percentage of S&P 500 members above the 200-day moving average (second panel), as well as the percentage of S&P 500 members above the 50-day moving average (bottom panel). In general, the percentage of stocks above the 50-day moving average represents more of a short-term indicator, because when a stock is still in a primary uptrend but experiences a pullback, it will hit this moving average first. Conversely, the percentage of stocks above the 200-day moving average is a better long-term indicator, as a much more significant drop is needed for a stock to fall below this long-term trend barometer. The S&P 500 itself (top panel) is well above its moving averages, reflecting the strength of this market environment relative to the October 2023 low. Note how the percentage of stocks above their 50 moving averages is that the 200-day moved above the 50% level in mid-November, confirming that many stocks were experiencing a similar increase. 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 Broad Support So as the S&P 500 tests 5000 this week, how confident should we be in further upside for stocks? I placed red vertical lines on the previous three events where we saw 90% of stocks above the 50-day moving average before the indicator fell back below 50%. This would indicate that approximately 40% of members of the S&P 500 have fallen below their 50-day moving average, in other words, a serious lack of breadth of support. In each of these three cases, the S&P 500 index moved even lower before finally finding its footing and rising higher. A key difference this time is that the S&P 500 itself is moving higher. In these other three cases, the benchmark was actually moving lower as the amplitude readings were deteriorating. But the message of the graph remains the same. If we see less than 50% of S&P 500 members remaining above the 50-day moving average, further upside above the key 5,000 level seems like an unlikely scenario before a more significant 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 CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO PURCHASE SECURITIES OR OTHER FINANCIAL ASSETS. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT THE UNIQUE PERSONAL CIRCUMSTANCES OF ANY INDIVIDUAL. THE ABOVE CONTENT MAY NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISION, YOU SHOULD CONSIDER SEEKING ADVICE FROM YOUR FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.