Understanding an overbought market breadth

Insight

This week's Market Quadrant posted the breadth as strong but overbought, based on % of stocks above 20-day MA.

Similar levels in April 23 did not take the market down, but they did in September 22 & April 22. So what was the difference between all these overbought levels?

If the % of stocks above both 20-day MA & 50-day MA are overbought (>80%), then there is a high probability of the market forming a top for some time. This probability is further increased if other than the 20 & 50, the % of stocks above 200-day MA is also greater than 50% at that time. The dates of 11 April 2022, 13 Sept 2022 & 8 Sept 2023 are such examples.

This is just another way of saying how 'young' or 'old' a rally is. ⦿ A young rally will start with an initially greater % of stocks above lower time-frame MAs like the 20. ⦿ An older rally would have greater participation, & % of stocks above higher MAs like the 200 would also be greater.

A younger rally can stay overbought for relatively longer periods than an older rally.