Participation is moving into in no man’s land, as most indicators have substantially weakened, yet not enough to move into oversold territory.

Regular check-ups are an essential part of ensuring your health and longevity, and one of the best ways to check-up on market health is through participation indicators. Higher levels mean more stocks are “participating” or contributing to upward price action, which is a net positive for markets. Meanwhile, lower levels or a decrease in participation can signal weakening of strength. So far, it has been a tale of two halves this quarter, with participation pushing higher before plummeting to levels not seen in several months. With so much movement over the last few months, where do the major indicators stand, and should they be cause for concern as we enter the fourth quarter?

Near-Term Participation

Among the most sensitive metrics NDW regularly uses are the Ten Week indicators, which look at the percentage of stocks in a universe trading above their ten-week moving average. The indicator is often the first domino to fall among our participation indicators but is more prone to head fakes given its sensitivity. Looking at the Ten Week for the S&P 500 (^TWSPX), participation pushed to its highest level since January to start off the quarter, peaking at around 70%. Since then, near-term participation has declined precipitously, with 36% of SPX members trading above their 50-day MA. Such a decline in near-term participation is a bit concerning, especially as major markets sit near all-time highs. When TWSPX has been in a column of Os between 20% and 30%, markets have performed slightly below their one-year average. That said, movement below 20% could signal potentially washed-out territory, with forward returns being constructive in that area, especially following reversals back into Xs from that area.

Intermediate-Term Participation

Due to their sensitivity, short-term indicators can signal initial changes but gain more significance when confirmed by the movement of intermediate-term indicators. To evaluate intermediate-term participation, NDW uses “bullish percent” charts (BPs), which measure the percentage of stocks in a universe trading on a PnF buy signal. Looking at the Bullish Percent for S&P 500 stocks (^BPSPX), the indicator peaked at 70% before falling to a below-average level at 34%, mirroring the rise and fall of the TWSPX. Forward returns for the market have historically been subdued when BPSPX is in Os between 30% and 40%, with SPX averaging a one-year return of only 5.2%. Additionally, reversals from this territory have seen some of the worst market returns, averaging a negative return over the next year. That said, movement or reversals from below 30% have been a very different story, often signaling oversold conditions that have been much better for the S&P 500.

Long-Term Participation

To confirm the movement of intermediate-term indicators, we compare them with the movement of long-term indicators. NDW evaluates longer-term participation with the Positive Trend indicators (PTs), which measure the percent of stocks trading in a positive trend on their PnF charts. Like the BP, the Positive Trend Percent for the S&P 500 (^PTSPX) rose initially this quarter before falling to levels not seen since April, currently sitting around 50%. Most of the market’s gains occur when PTSPX is above 50%, so the market’s ability to maintain or improve upon current levels will be a crucial factor in whether it can deliver a strong performance through the remainder of 2026. That said, the magnitude of market upside has been higher when PTSPX is outside the no man’s land between 40% and 60%. When trading in a column of Os around current levels, the S&P 500 has averaged a one-year return of only 2.5%. In contrast, readings above 60% or below 30% have been much more constructive, often seeing above-average returns going forward.

The fourth quarter has historically been the best period for the market, especially during midterm election years. Regardless of whether stocks match or exceed their usual rally during this quarter, participation will play a large role in market performance. Movement into washed-out territory, a rally back into higher territory, or even better, a combination of the two, would be positive signs for the market’s end-of-year outlook. However, with participation still in no man’s land, investors should remain cautious and watch for further signs of deterioration.