The S&P 500 Index (SPY; blue line above) hit fresh bull market highs this past week, but not that the number of stocks registering fresh 20-day highs barely exceeded the number making new lows during the week. Steadily fewer issues have participated in the rally since September, reflecting a narrowing of the bull market's base.
Much of this weakness reflects the relative strength of large cap stocks compared with smaller cap issues.
For example, I took a look at the excellent Decision Point site and noticed that fully 97% of Dow Industrial stocks are trading above their 20-day exponential moving averages (EMAs). For the S&P 500 large cap stocks, that percentage is 72%; for the NASDAQ 100 large caps, the proportion is 75%.
When we look at the broad NYSE Composite Index, however, the percentage of stocks trading above their 20-day EMAs is 59%. For the NASDAQ Composite, it is 41%.
Although 72% of S&P 500 large caps are trading above their 20-day EMAs, that percentage falls to 61% for S&P 400 midcaps and 45% for S&P 600 small caps.
One logical explanation is that U.S. dollar weakness is benefiting large cap companies (which often have international operations that benefit from a weak dollar) more than small cap companies. If that is the case and U.S. dollar weakness continues, we could see a repeat of "Nifty Fifty", in which market strength is largely driven by the largest cap stocks.
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