While US indices like the S&P 500 sit near the top of the 10-week trading band on their trend charts, most short-term indicators may not appear as overbought as indices convey.
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Major US Equities kicked off this week with a positive session on Monday (7/14), keeping most of their point and figure trend charts near recent highs and in overbought territory. While US indices like the S&P 500 sit near the top of the 10-week trading band on their trend charts, most short-term indicators may not appear as overbought as indices convey.
For example, the weekly distribution (^WD) indicator for NYSE stocks (^WDNYSE), which measures the average overbought/oversold reading of roughly 1800 stocks, pulled back into a column of Os following Friday’s trading and resides at 20%. The reversal in Os followed a second rally to 28% on the chart, matching similar overbought levels seen in 2024, but not quite to the extended territory witnessed in late 2023 when the indicator moved above 40%.
Additionally, the 10-week indicator for NYSE stocks (^TWNYSE) reversed into Os following Friday’s action to 70%. While still suggesting roughly 7 out of every 10 stocks within the NYSE stock universe trade above their 50-day moving average, similar to 2024, the indicator hasn’t moved above 80% to match the elevated levels from 2023.
While the average stock defined within the NYSE universe does suggest an overbought stance, it doesn’t quite resemble market indices. So what gives? For one, it suggests the recent rally to highs by indices was driven by a smaller number of stocks. This can be seen by the distribution curves of the 10-week (^TW) and weekly distribution (^WD) indicators for the 40 NDW Industries/Subsectors, as only a small number of industries witnessed their 10-week and weekly distribution indicators reach elevated, extended levels. Among those were Semis, Banks, Gaming, Savings and Loans, Aerospace Airlines, and Steel, many of which were ones that came under fire after initial tariffs announcements in April, only to rally back in May and June to close out Q2. Additionally, the curves also highlight the lower levels for industries like Healthcare and Insurance, indicating their lower contribution and participation in recent highs.
While investors wait for the next potential market catalyst and what industries may drive that, NDW users should note that distribution curves for various indicators that can be compared to previous dates. By utilizing and comparing the distribution curves of indicators, users can visualize a variety of things such as overbought/oversold positioning, along with participation levels and leadership. The distribution curves can be found under the Allocation tab on the left-hand side of the page.
