S&P 500 alarm bells are starting to go off

Dig beneath the surface of a market not far from its highs, and you will find one mounting red flag: a lack of confidence in the bull case for staying long stocks.

Here's how to spot it. Only 25% of S&P 500 stocks are now trading above their 50-day moving average, the lowest proportion since April, points out the team at The Kobeissi Letter. That's an eye-opening deterioration from the 70% reached in mid-August.

What's more, just 47% of stocks are trading above their 200-day moving average, also the lowest level since April.

As of Monday's session, new 52-week lows on the New York Stock Exchange outnumbered new highs for the 10th consecutive trading day, and in 14 of the last 15 sessions.

"Market breadth is rapidly deteriorating," said the Kobeissi Letter team. While this is not an ultimate sell signal for stocks, it warrants attention in the coming weeks.

A healthy advance typically sees more stocks participate. Weakening breadth means fewer stocks are validating the index's move. In this case, investors rotated back into Magnificent 7 names like Nvidia ( NVDA ) and Meta ( META ) in the third quarter. They hunkered down in tried-and-true tech names and moved out of more multinational names getting hit by rising interest rates and commodity prices.

If there is a positive takeaway, it's that corporate earnings remain strong, as seen late Wednesday in the report from memory chip maker Micron ( MU ).

"At this point, bearish investors and pundits will dutifully rattle off all the reasons why - rising interest rates, high valuations, high food and energy prices, debt and deficits, election uncertainty, geopolitics and war, etc., etc., etc. And it is understandable that an individual would feel something less than euphoria given these circumstances. However, history all demonstrates that major market tops rarely occur before a majority of investors climb aboard the "euphoria train." That clearly has not happened yet. So while other factors like breadth and interest rates suggest trouble in the near-term, the state of investor sentiment suggests that a major long-term top has not yet been formed," said strategist Jay Kaeppel of the SentimentTrader report.

Brian Sozzi is Yahoo Finance's Executive Editor, host of the Sozzi Unleashed morning show, the ' Power Players With Brian Sozzi' podcast and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi , Instagram , and LinkedIn . Tips on stories? Email brian.sozzi@yahoofinance.com.