- Real Estate Breadth is Strong, Confirming the Price Trend
- Short & Intermediate-Term Breadth Metrics Remain in Uptrends
- Longer-Term Metrics Continue to Diverge
- Small Cap Breadth is the Weakest of the Bunch
- Watching the 20-Day Moving Average for the S&P 500
Chart in Focus:
In our note on Tuesday, we highlighted the bullish trend in the Real Estate sector and how the relative trend was also improving. Looking at the group’s intermediate-term breadth, we can see that more than 80% of the sector is above their respective 50-day moving averages as the index (lower panel) trades just below record levels.
After two weeks of improvement, the NYSE Advance/Decline Line has taken a turn lower this week as the S&P 500 has traded lower for three consecutive days. The indicator is slightly below the 50-day moving average, which is still declining. At the same time, record highs for the index have still not been confirmed by a new high for the A/D Line, leaving a bearish divergence in place.
The NYSE’s Advancing – Declining Volume Line has met resistance at the declining 50-day moving average and the downtrend line from the June peak. Here too, there is a divergence between price and the indicator, which would be a concern should price break below near-term support levels.
The 5-day moving average of issues on the NYSE making new six-month lows has begun to turn higher over the past week. The 52-week metric is down slightly on a week-over-week basis, but the pace of the decline appears to be slowing. Bullish investors want to see these metrics consistently below the 1% mark.
The 5-day moving average of the percentage of NYSE issues making new 52-week highs is beginning to turn down, though it is slightly higher than what was seen last week. The percentage of issues making new six-month highs is also higher than last week but is now heading in the wrong direction as well. A fast reversal from current levels would be a welcome development for equity bulls.
The percentage of issues on the NYSE that are trading above their respective 200-day moving averages continues to trend lower despite a persistent rise on the part of the S&P 500. The bearish divergence that has been playing out for most of 2021 remains firmly in place. Equity bulls want to see a recovery above the 60% level.
The percentage of NYSE issues trading above their own 50-day moving averages has moved lower over the past week, losing the near-term breakout level to trade back below the 50% mark. Thus far the series of higher highs, and higher lows, that began in July remains in place and we want to see a quick recovery to have confidence that the recent stalling activity for the index is not morphing into a bigger pullback.
Like the 50-day moving average metric, the percentage of stocks trading above their respective 20-day moving averages has taken a turn to the downside this week while maintaining the uptrend that began in July. This is playing out as the S&P 500 is in the process of testing its own 20-day moving average which continues to rise. Recent tests have seen brief undercuts of the moving average that have quickly been reversed (arrows).
S&P 500 Breadth
Breadth metrics for the S&P 500 weakened over the past week as the index has declined for three consecutive days.
- Advance/Decline Line: Pulling back from record levels, above the 50-day moving average.
- Percent Above Their 200-Day Moving Average: 73% from 78% last week, downtrend in place.
- Percent Above Their 50-Day Moving Average: 58% from 65% last week.
- Percent Above Their 20-Day Moving Average: 48% from 61% last week.
Looking at the trend metrics, the short-term (20-day) and intermediate-term (50-day) data points are making higher highs and higher lows. The 200-day metric is in a downtrend. Ideally, we want to see these datapoints “in gear” and confirming the price trend for the index.
Small Cap Breadth
Breadth metrics for the S&P 600 Small Cap Index have also declined over the past week.
- Advance/Decline Line: Fades from the 50-day moving average.
- Percent Above Their 200-Day Moving Average: 54% from 62% last week.
- Percent Above Their 50-Day Moving Average: 44% from 58% last week.
- Percent Above Their 20-Day Moving Average: 41% from 66% last week.
Higher highs and higher lows remain in place for the short and intermediate-term metrics.
As the S&P 500 has declined over the past three days, breadth metrics have weakened. Short and intermediate-term trend measures remain in early uptrends, while long-term trend metrics continue to decline. We want to see these short and intermediate-term improvements begin to show up in the longer-term metrics to alleviate the divergences that have been in place for months. In the interim, support levels continue to hold, keeping current trends in place.
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