Friday, May 02, 2014

What Stock Market Breadth is Telling Us

If you look closely, you'll see something quite unusual:  the large cap indexes, such as the Dow and SPX, have been making or have been close to making all-time highs.  If we look at the broad universe of common stocks, however, we can see that more are making 3-month new lows than new highs.  Indeed, this has been the case for the past five trading sessions, despite a rise in the large cap indexes over that five-day period.

In a similar vein, we have made 10-day highs in SPX but only 50-60% of SPX stocks have been trading over their 10-day moving averages.  

A little over 5% of small cap stocks have been making fresh 50-day highs, but a little over 7% have been making new 50-day lows.  A bit under 32% of SP 600 small cap shares were trading above their 10-day moving averages when the DJIA made an all-time high.

A strong trend, like a strong tide, should lift all ships.  A number of ships remain beached at the moment.

Further Reading:  Stock Market Breadth

Addendum - NRK chides:  "In a very strong stock market, corrections will tend to be flat and rotational.  The flip side of the "weak breadth" story is a market in which 30+% corrections in former price leaders cannot drag the broad market down.  The upside breakouts in EFA and FEZ are worth keeping an eye, as is the ability of EEM to hold above its March lows.  An upside resolution of the flattish correction could easily spark a global growth story."