Breadth Weakens Slightly,
but Should We Worry?

by | Jan 6, 2022

Key Points

  • Metals & Mining Make a Bullish Turn
  • NYSE New Lows Pick Up Slightly
  • NYSE New Highs Hold Firm
  • S&P 500 Breadth Weakness Is Most Severe in the Short-Term Metrics
  • Small Cap Metrics Hold Up the Best

Chart in Focus

In our sector note on Tuesday, we highlighted the bullish scenario in Materials. Within the group, strength is beginning to emerge in the Metals and Mining Index. Trading above the 50 and 100-day moving averages, Metal and Mining have also broken resistance to the upside. Above 231, the stage is set for a run to the 2021 highs.

The relative trend is also improving, above the 50-day moving average and on the verge of a breakout.

NYSE Breadth

The NYSE’s Advance/Decline Line is holding above support but has begun to fade from the declining 50-day moving average, following weakness in the index yesterday that saw the S&P 500 pull back to its 50-day moving average. We have been highlighting the divergence that is in play as the A/D line failed to confirm record price highs. This will become important should the index break key support levels.

After improving over the past few weeks, the five-day moving averages of issues on the NYSE making new 52-week and six-month lows turned higher yesterday. One day does not make a trend, and we note that spiked since November have culminated at lower highs. We would be more concerned if there were a persistent build in new lows. Thus far, that has not been the case.

The five-day moving averages of stocks on the NYSE making new six-month and 52-week highs continues to trend higher. An encouraging sign for equity bulls that they want to see continue.

The percentage of stocks on the NYSE trading above their respective 200-day moving averages moved to 36% this week from 38%. We want to see more of an improvement in this metric as the S&P 500 trades near record levels. For now, the downtrend of 2021 remains in place for this indicator as the new year begins.

The percentage of NYSE issues trading above their respective 50-day moving averages has moved to 38% from 40% last week. This metric remains in the downtrend that has been in place for more than a year.

The percentage of stocks trading above their respective 20-day moving averages fell to 49% from 62% last week as the S&P 500 pulled back to test its 20-day moving average. This metric had been improving over the past two weeks; equity bulls want to see that continue after yesterday’s detour.

S&P 500 Breadth

Breadth metrics for the S&P 500 weakened over the past week.

  • Advance/Decline Line: Holding near record levels.
  • Percent Above Their 200-Day Moving Average: 70% from 71% last week.
  • Percent Above Their 50-Day Moving Average: 65% from 70% last week.
  • Percent Above Their 20-Day Moving Average: 63% from 89% last week.

SmallCap Breadth

Breadth metrics for the S&P 600 Small Cap Index held up best over the past week.

  • Advance/Decline Line: Above the 50-day moving average, but another lower high
  • Percent Above Their 200-Day Moving Average: 54% flat from last week.
  • Percent Above Their 50-Day Moving Average: 53% flat from last week.
  • Percent Above Their 20-Day Moving Average: 67% from 82% two last week.

Take-Aways:

Yes, breadth declined after weakness across the board yesterday. However, the metrics held up better than we would have expected. Small Cap breadth has held up the best. While we do not want to see the situation worsen, we do not yet see a cause for concern beyond what is well understood at this point.

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.