There are many tools that can be used to measure momentum in the stock market. The two that we are looking at today are the percent of stocks above their 200-day moving average and the percent of stocks where the 50-day moving average is above the 200-day moving average. When these measures are over 80%, stocks are considered at overbought levels. When the two measures are both around 80%, recent history suggests that the equity market has run out of steam and markets have tended to drop.
Over the past six weeks there has been a noticeable surge in the MSCI Pacific as the percentage of stocks trading above their 200-day moving has skyrocketed from 46% to 75%. This momentum looks like it could carry on for a while as the percent of stocks where the 50-day moving average is above the 200-day moving average still has some catch up room.
Meanwhile in Europe, momentum has started falling from elevated levels, after peaking at the end of last year. This could be signaling a top has been put in place in Europe since the percent of stocks with the 50-day moving average above the 200-day moving average is also deteriorating from the 80% level at the same time.
Charts of the MSCI World and MSCI North America are below.