Surprising Pockets of Weakness in the U.S. Stock Market

Recent posts have focused on continued net strength in the stock market.  Friday's shortened session was an interesting one, however, given the significant weakness in the oil market.  Energy and raw materials shares sold off sharply, even as the SPX hovered near all-time highs.  As you can see from the top graphic from the excellent Finviz site, we've seen an unusual divergence in performance between consumer-related sectors and commodity-related ones.  The weakness in energy-related shares in particular contributed to a situation on Friday in which 841 stocks across all exchanges closed at one-month highs, but 615 closed at fresh monthly lows.  That's the highest level of monthly lows since the October bottom.

As the bottom three charts reveal (credit to the ever-informative Index Indicators site for these), growing weakness has not been limited to the energy shares.  When we look at the large cap average (SPY; second chart from top), we see many stocks making new 20-day highs over lows and prices near all-time highs.  Midcap shares (MDY; second chart from bottom) have also made new highs, but only marginally so.  Among the midcaps, 20-day new highs and lows were about even on Friday, well off the levels reached at the end of October.  When we turn to the small caps (IJR; bottom chart), we can see that fresh 20-day lows outnumber new highs and are well off the late October peaks.  Note that the small caps have yet to make a fresh yearly high--quite a contrast from the large cap strength.

Recent posts have stressed that it takes more than a pullback of buying interest to sink a rising market:  we need to see outright evidence of weakness.  Not only among energy stocks, but also the smaller caps, we're starting to see such weakness.  I couldn't help but notice on Friday that 128 stocks in the NYSE universe closed above their upper Bollinger Bands, an above average reading.  A total of 300 stocks, however, closed below their lower bands.  

That is not supposed to happen in markets sitting near their highs.

Further Reading:  Market Strength vs. Weakness
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