Sing empty sounds? But this indicator is sending a buying signal!

The S&P 500 is often seen as a weather vane for the US economy, but don't be fooled by it sometimes.

Today's S&P 500 Index is different from what it used to be. Today, only a few companies account for the majority of the S&P 500 Index's constituent stocks.

A few companies refer to “FAAMG” companies, including Meta Platform (FB), Apple (Apple), Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL).

The total market capitalization of these five companies accounts for 22.3% of the S&P 500 index. If you add Tesla (TSLA) with a listing value of $1.1 trillion, the market capitalization of these six companies accounts for a quarter of the S&P 500 index.

Therefore, although the S&P 500 originally represents a broad range of markets, many times its trend is directly related to these big tech giants.

Other smaller companies may be in trouble, and their stock prices may fall, but if the shares of these 6 tech giants rise, the S&P 500 index may also rise. As a result, it is often difficult to tell whether a bull market is actually healthy or whether it is supported by just a few companies.

One way to assess this is to look at the rising and falling lines of the S&P 500 index.

The rise and fall line is a simple evaluation indicator. The number of stocks that have risen on a certain day is subtracted from the number of stocks that have fallen. If there are many stocks that have risen on the same day, the rise and fall line will rise; if there are more falling stocks, the rise and fall line will fall.

In a typical bull market, when the market rises, the rise and fall line rises.

When the rise and fall line falls and the market continues to rise, you need to be careful, which means that the increase is mainly concentrated on a few companies.

This is exactly what happened in the late 1990s, and as you saw later, the internet bubble burst soon after.

The current rise and fall line doesn't look at all like it was in the late 90s of the last century.

The market is rising, and the rising and falling line is also rising. Looking at this indicator, we can see that the current bull market is still healthy.

In the chart above, you can even see that the S&P 500 index (black line) has declined in recent days, but the rising and falling line (green line) is close to an all-time high, which sends a buying signal.

Simply put, the rise and fall line is a simple but effective tool, and now it reflects that the stock market may continue to rise.

Despite all the concerns that the current bull market might end (from inflation to record stock valuations), I personally think there are opportunities to consider going long.

Also, given the recent volatility, there are plenty of good trading opportunities in the market right now.

Some of the world's leading blue-chip companies are at a low point and ready to bounce back.

Analyst: Jeff Havenstein

Compiled by Samantha