By Graham Summers, MBA | Chief Market Strategist
Finally some good news!
On Friday, stocks experienced their largest single day gain of 2025. Friday was also a 90% up day: a day in which 90% of stock trading volume was upwards. This, along with several other metrics, is signaling a bottom is in and a bounce has begun. The bigger question is if this is a dead cat bounce or the start of a significant rally.
The markets are a lot like a rubber band: while they can stretch one way or the other and sometimes will reach extremes… but those periods usually resolve with a “snap back” move that brings the market more in line with its normal range, just as a rubber band will snap back from an extreme stretch to its normal resting position.
For stocks, one means of reading the degree of “stretch” is to chart the percentage of the index that is trading above or below the intermediate term trend: the 50-day simple moving average (DSMA).
When a large percentage (over 85%) of stocks are trading over this line, it usually means stocks are overbought and due to correct. Conversely, when a low percentage (below 40%) of stocks are trading above this line, it usually means stocks are oversold and forming a bottom.
You can see the latter phenomenon in the chart below. Anytime less than 40% of stocks in the S&P 500 are above their 50-DSMA, the market usually bottoms soon after. Bear in mind, this is correct in every market environment whether it be during a bear market and a correction that occurs in the context of a bull market.
So what is this metric saying today?
Only 30% of stocks in the S&P 500 are currently trading above their 50-DSMA. This is a strong signal that stocks are extremely oversold and likely forming a significant bottom. Remember, the last five times this low of a percentage of stocks were above their intermediate term trend, stocks kicked off a multi-week rally.
Put simply, a major metric is signaling to us that the odds greatly favor stocks bottoming right here and now. This is the only chart to focus on this week as the media and fintwit are all extremely bearish and calling for a crash.
The odds favor a rally, NOT a crash.
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Best Regards
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
