March 23 marked the peak of the market panic COVID-19 brought on. Fewer than 3% of shares on the NYSE were trading above their respective 200-day moving averages. The only time in recent history that number was lower was during the credit crisis in 2008.

It’s an important indicator to monitor. Every single time it falls below 15, the market is close to a bottom. When we get to extremes like those in March, it’s an all-in buy signal.

There’s a simple reason for that. A crisis that panics all investors at the same time will always create a government intervention. That’s what we saw after 9/11 in 2001, the credit crisis in 2008, and the COVID crisis this year.

The other thing to pay attention to is that after a very depressed reading, the NYSE jumps all the way back up to the peak.

That makes sense too. When governments and central banks throw money at the market, traders race to pick up bargains. That puts pressure on short sellers, and impressive rebounds take place. At the same time, the moving averages will have been moving lower because the average prices will have declined during the bear market. That makes it easier for shares to trade back above their 200-day moving averages.

The 200-day moving average is the rough average of what the price has been over the preceding year. If a share is trading above it, the logical conclusion is that on average, prices are rising.

On Friday, 86.55% of shares were trading above their 200-day moving averages. That’s coming very close to historic highs. In fact, there have been only two occasions when the value was higher – in 2003/04 and 2009. Both of those times followed big rebounds from bear-market lows.


In the past, major peaks in the NYSE have been followed by significant declines. This is likely to happen again. The rationale is clear. Not every company is going to recover. The lifelines the feds handed out in March will expire. The market will then separate the winners from the losers. That’s a multi-month process.

All you had to do to make money was be invested after the lows in March. It was that simple. Almost everything went up.

As we move further into the recovery, we’ll see greater differences in performance appear among stocks. Not every hotel chain, retailer, airline, cruise line, or restaurant is going to survive. Those that do will have more market share to chase and will come out stronger. That’s how recessions work. The strongest get stronger and the weakest disappear.

Paying attention to the shares that hold their breakouts has served me best in the last 20 years. Some shares are now at new highs. Others have stopped rising. By the end of the first quarter of 2021, if the companies at new highs today are still at new highs, they’ll be among the best candidates to prosper in the new bull market.

A share that’s at a new all-time high now might be there because of factors that benefited it during the lockdown. If it can hold that gain when lockdowns end, that’s a strong signal. It’s evidence the company has a business model that doesn’t depend on the pandemic.

Amazon hit a new all-time high in September 2009. Most other shares were only just beginning to recover. As that recovery got moving, I wrote a book to highlight the winners and how they were likely to perform. Relative strength in the early part of a new cycle has helped me identify the leaders in a new bull market following the last two recessions. I’m aiming to make it three.

All the best,

Eoin Treacy