As U.S. equity markets continue to forge new highs, we take a look at our strong and weak close indicators to gauge investors’ conviction levels in the latest moves. The strong close indicator is calculated by recording the cumulative number of days over the last 130 trading days (26 weeks) that the index has closed within 25% of the high for the day. The weak close indicator represents the cumulative number of days over the last 130 trading days (26 weeks) that stocks have closed within 25% of the low for the day.
Going back 20 years, we find that the strong close indicator for the S&P 500 (red line) is currently near the middle of its long-term range, having declined from a high of 57 in August.
Conversely, the weak close indicator shows a recent spike in the number of weak closes (note that the axis in the left is inverted) compared to the multi-year lows it reached in September.
Combining these two indicators, we have our net strong close indicator which simply subtracts the number of weak closes from the number of strong closes. Typically, we would expect to see the net strong close indicator expand during a rising market (as strong closes dominate) and fall as prices decline. But here, too, we find that, far from robustly confirming recent market strength, the indicator implies a slightly more tepid level of conviction among S&P 500 investors.
European stock indexes are also exhibiting more weak closes– but, in these cases, equity markets are not making new highs in price.
The main exception to the global trend in weak market closes is Japan, where net strong closes are well above the ten-year average.