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Key Points

  • S&P 500 Equal Weighted to Cap Weighted Ratio Gets a “Death Cross”
  • NYSE Breadth Weakens Over the Past Two Weeks
  • New Lows Beginning to Move Higher, Bulls Want to See a Quick Reversal
  • S&P 500 Breadth is the Best of the Bunch, A/D Line Makes a New High
  • Small Caps Trying to Improve but Weak Breadth Persists

Chart in Focus:

The S&P 500 Equal Weight Index relative to the S&P 500 is trying to stabilize below the 50 and 200-day moving averages which are in the process of completing a “death cross.” Holding current levels and retaking the moving averages would be a signal that breadth is beginning to improve. Below the moving averages is a sign that investors continue to favor the larger stocks in the index.

The 14-day RSI has made a higher low as the ratio stabilizes. We now want to see this divergence confirmed with the move back above the moving averages.

NYSE Breadth

The Advance/Decline for the NYSE has rebounded from last week’s pullback and is now testing the declining 50-day moving average from below. The divergence that we have been highlighting for the past few weeks remains in place as this indictor fails to confirm record highs for the S&P 500, which has closed higher for five consecutive sessions.

The NYSE’s Advancing – Declining Volume Line remains below the declining 50-day moving average even after improving over the past week. Here too, the indicator is diverging with the series of record highs being set by the S&P 500.

The 5-day moving averages of issues on the NYSE making new 52-week and six-month lows have moved higher since we last wrote about them two weeks ago. Last week saw a spike to the upside which has begun to reverse this week. Equity bulls want to see these metrics continue to move to the downside in the days/weeks ahead.

The 5-day moving averages of the percentage of NYSE issues making new 52-week and six-month highs has declined over the past two weeks but have staged a rebound from the lows that were seen as stocks came under pressure last week.

The percentage of issues on the NYSE that are trading above their respective 200-day moving averages remains in the downtrend that has been in place since the start of the year. This metric is below resistance and the important 60% level and has weakened over the past two weeks.

The percentage of NYSE issues trading above their own 50-day moving averages is lower than the levels seen two weeks ago and remains below the 60% threshold. The downtrend for this indictor remains in place as it continues to diverge with the price of the S&P 500.

Two weeks ago, we noted improvement in the short-term trend metrics but over the past two weeks, the percentage of stocks on the NYSE trading above their 20-day moving averages has decreased. The recent test of its own 20-day moving average produced a higher low for this indicator, but breadth remains under pressure in the short-term.

S&P 500 Breadth

Breadth metrics for the S&P 500 remain stronger than what we are seeing for the NYSE:

  • Advance/Decline Line: New high this week, above the rising 50-day moving average.
  • Percent Above Their 200-Day Moving Average: 81% from 85% two weeks ago.
  • Percent Above Their 50-Day Moving Average: 68% from 67% two weeks ago.
  • Percent Above Their 20-Day Moving Average: 65% from 72% two weeks ago.

It is encouraging to see the A/D Line at new highs. Additionally, we note that the 20 and 50-day metrics have been making higher lows of late.

Small Cap Breadth

Breadth metrics for the S&P 600 Small Cap Index remain under pressure.

  • Advance/Decline Line: Below the declining 50-day moving average.
  • Percent Above Their 200-Day Moving Average: 61% from 69% two weeks ago.
  • Percent Above Their 50-Day Moving Average: 50% flat from two weeks ago.
  • Percent Above Their 20-Day Moving Average: 58% from 70% two weeks ago.

While the 20 and 50-day metrics have made a higher low, we note that the 200-day data remains in a downtrend.

Take-Aways

After showing a slight improvement two weeks ago, breadth metrics weakened with the pullback in the equity market last week. This week has seen a slight rebound, but we are still hard-pressed to call breadth metrics healthy despite the S&P 500 trading at record levels.

Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.