Last week we saw a reversal lower for PTSPX, our long-term participation indicator. What could this mean going forward for major markets?

Despite sitting around all-time highs, market participation has waned off significantly. Until just last week, that drop-off had remained somewhat isolated to more near & intermediate pictures, as seen through ^TWSPX and ^BPSPX. Last Thursday, a longer-term indicator moved lower, enough so to reverse into a column of O’s on its default PnF chart. ^PTSPX, which measures the percentage of S&P 500 stocks trading in a long-term positive trend moved back into O’s with recent movement, showing some signs that the recent drop off in participation is seeping over into our less sensitive indicators. It is worth noting that participation and performance can diverge. We saw this most recently in 2023, as major markets put together a 20%+ year at the hands of fewer and fewer stocks. As long as market heightened concentration trends continue, this will continue to be the case. Long-term participation hasn’t dropped off intensely (yet), but the reversal does offer an important metric to monitor as we close out October. As we typically do for notable indicator reversals, we also included a forward return table detailing returning following reversals across different levels. There are several takeaways across the board, but perhaps two of interest about last week’s reversal. First, long-term (1-year) forward returns remain strong for SPX, suggesting that on average reversals lower from similar field positioning haven’t led to significant slowdowns. Secondly, we are still well above “normal” territory, marked as 50%. Most of the historic positive action comes while ^PTSPX is above 50%, so until we see further technical deterioration, we would suggest to stay the course.