Saturday, May 05, 2007

Dwindling Participation in the Recent Large Cap Rally

As the S&P 500 large cap market (blue line) has steadily risen to new highs over the past week, fewer stocks in the S&P 500 universe have participated in that move. Above I'm tracking the number of 10 day highs minus lows among 40 highly weighted S&P 500 stocks. These are evenly divided among the Materials, Industrials, Consumer Discretionary, Consumer Staples, Energy, Health Care, Financial, and Technology sectors. (See those recent sector money flow posts for the specific roster of stocks.) Note that on Friday, as we hit new highs, there were 9 stocks in the basket making 10-day highs and none making 10-day lows. By contrast, on 4/25 we had 18 fresh 10-day highs and no 10-day lows. It appears that the rally is becoming more selective.

This accords with the data reported in today's Trading Psychology Weblog, which show waning new 52-week highs across several different U.S. equity markets. I don't expect the market to spiral downward from here: money flows remain solid, and we're not yet seeing stocks expanding new lows. Rather, the rally is relying on a dwindling base of strength, and that's generally led to consolidation prior to any fresh bull leg.


Will Rahal said...

Great chart Brett!
As you know, I favor the Large-caps.So this could be pointing to some sort of intermediate top!
In my blog I provide with a possible maximum move for the S&P for the month of May, based on the money supply(M2) expansion.
(Sorry for the self promotion, but nobody loses by it)

Brett Steenbarger, Ph.D. said...

Hi Will,

Thanks for the link. I would say that we're seeing a short-term topping process. I'm not yet seeing evidence of an actual intermediate top, given strong momentum and dollar flows.