Wednesday, October 08, 2014

Stock Market Breadth: Weakness Extends to the Large Caps

Credit to the excellent Index Indicators site for these charts.  What we're looking at is the percentages of stocks trading above their 200-day moving averages for four different indexes:  the SPX and NASDAQ large caps; the midcaps; and the small caps.  

My earlier post observed that the majority of stocks across the averages were no longer in a bull market.  Small caps and midcaps were notably underperforming the SPX and NASDAQ large caps.  What we're seeing now is that small caps and midcaps have decisively moved below their early August lows.  Less than 24% of small cap shares and less than 29% of midcap stocks are trading above their 200-day moving averages.

The SPX and NASDAQ large caps have held above their August lows, but note the deterioration in their breadth.  Only about 54% of NASDAQ shares and less than 52% of SPX stocks are now above their 200-day averages.  In other words, close to half the large caps are now in bull market mode, levels we haven't seen since late 2012.

Meanwhile, we had 101 more new 100-day lows than highs among SPX stocks, which was an expansion of lows from the recent market bottom.  New lows also expanded relative to last week for the NDX large caps.  My base case has been for a stock market correction, followed by year end rally.  So far, however, the breadth data suggest that weakness has been broadening from the smaller caps to the large caps.  That has me alert to the possibility that any expectable rally from these oversold conditions could lead to a lower price high for stocks as part of a larger market correction.