Tuesday, July 21, 2009

A Look at What is Lagging in a Strong Market

At the same time that we see stocks (S&P 500 Index; SPY, top chart) challenging their bull highs, several sectors are lagging. Those include banking stocks (second chart), homebuilding shares (third chart), energy issues (fourth chart), and industrial stocks (bottom chart).

Despite these potential divergences, several indicators are giving strong readings. We have made bull market highs in the advance-decline lines for many of the indexes, including the S&P 500 Index. We also have seen bull market highs for the percentage of stocks trading above their 200-day moving averages: over 64%, according to Decision Point. We've also seen strength in emerging market, small cap, and technology shares, suggesting a healthy risk appetite.

With 995 65-day new highs across the NYSE, NASDAQ, and ASE, we are well off the June peaks. I will be respecting the bull's strength for now, but will become defensive should we be unable to expand these new highs meaningfully (and should sector non-confirmations persist).