Since December, we have highlighted a notable improvement in market breadth that accelerated further in January, led primarily by cyclical sectors. This broadening participation marks an important internal shift, especially against the backdrop of historically concentrated market returns over the past few years.
Within the cyclical complex, materials have emerged as a clear standout. In particular, the percentage of stocks trading above their 50-day moving average has sustained at 100% for six consecutive sessions—an occurrence last seen in 2016, a period that saw a powerful move in commodity-oriented sectors like materials following a bear market in the group.
While persistent breadth streaks of this magnitude are generally observed in the wake of major bear markets, the present case instead follows a notable stretch of relative underperformance, as detailed in our Chart of the Week last week.
Our dual trend system identifies stocks that are both in established uptrends and outperforming the S&P 500. The chart below shows that 96% of S&P 500 Materials stocks are currently on short-term buy signals. This is the most elevated reading in nearly a decade, underscoring the strength of the current advance.
For those who may be curious, this indicator has a strong track record of identifying mean-reversion opportunities as it approaches 0%.
Each Chart of the Week highlights a theme, idea, or historic event that stood out to us. If you find it interesting, feel free to share it with friends or colleagues.
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