Key Points

  • Leadership & Participation are Concentrating in the Largest Stocks
  • NYSE’s Advancing – Decline Volume Line Cracks a Key Level
  • Small Cap Breadth Sustained the Most Damage
  • S&P 500 Holds Up Better than the Rest
  • How Long Can the Generals Lead with the Soldiers in Retreat?

Chart in Focus:

Leadership and participation in the market is narrowing to the largest stocks. The S&P 100 Index is trading near record highs, above the steadily rising 50-day moving average. On a relative basis, the S&P 100 has made the turn vs. the S&P 500. The ratio is above the rising 50-day moving average and short-term support.

NYSE Breadth

The NYSE Advance/Decline Line has failed to confirm the record highs seen by the S&P 500 this week and is now testing the rising 50-day moving average. While the indicator has not broken down in a meaningful way, the lack of confirmation points to declining participation.

Unlike the Advance/Decline Line, the NYSE’s Advancing – Declining Volume Line has broken below the 50-day moving average. This indicator has left a larger divergence on the chart after failing to confirm the price highs achieved by the index. In addition, our 21-day volume indicator continues to turn decidedly negative. Further weakness on the part of this indicator will likely make it hard for the S&P 500 to sustain its uptrend for much longer.

The 5-day moving averages of issues on the NYSE making new 52-week and six-month lows have started to move higher over the past week, rising above the 1% level. An increasing number of stocks making new lows would make it difficult for the major market averages to sustain their uptrends.

 

The percentage of issues on the NYSE that are trading above their respective 200-day moving averages has declined over the past week and is now testing support. A break of support and move below the 60% level would be a sign that a “healthy” majority of stocks are no longer in long-term uptrends.

The percentage is issues on the NYSE that are trading above their respective 50-day moving averages has also moved lower over the past week and is now below the 50% mark. The indicator has been making lower highs for over a year, but we have to wonder if the S&P 500 can continue to move higher with fewer stocks in intermediate term uptrends. 

The percentage of NYSE issues trading above their respective 20-day moving averages is holding below 50% once again this week. Despite this dynamic, the index remains above its own 20-day moving average.

S&P 500 Breadth

Breadth metrics for the S&P 500 are holding up better than what we are seeing on the NYSE. The Advance/Decline Line has pulled back from a recent high but remains in an uptrend. The percentage of stocks above their 200-day moving averages stands at 88%. The percentage above their 50-day moving average is at 48% while the percentage above their 20-day moving average has improved in the week.

Small Cap Breadth

Small Cap breadth has sustained the most damage over the past week. The S&P 600 Advance/Decline Line has moved below the 50-day moving average which had been acting as support since November. The percentage of stocks above their 200, 50, and 20-day moving averages have all declined further this week as well.

Take-Aways

Breadth metrics across markets have weakened further over the course of the past week, with the damage most pronounced in Small Caps. Participation in the uptrend is becoming more concentrated in the largest names. The “generals” are leading but the “soldiers” are in retreat.

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.