Key Points

Breadth metrics for the S&P 500 and the NYSE remain healthy. For the S&P 500, trend measures have reached levels that are not often seen. Equal Weight vs Cap Weight S&P 500 ratio is failing from a key level. Are large caps beginning to lead once again? Thoughts on recent strength in the Utilities sector.

Chart in Focus

The S&P 500 Utilities Index has caught our attention over the past few days as it recently broke above an interim high which has now been established as a support level near 325. This sets the stage for a move to new 52-week highs near the 345 mark.

Some may point to strength in Utilities as a warning sign for the equity market, but we have noted for the past few weeks that this group remains a strong underperformer. Perhaps the Utilities are being used as a place for fixed income investors to “hide out” as the treasury market remains under pressure? Are yields on Utility stocks drawing an allocation that was otherwise earmarked for 10-year treasury bonds yielding less than 1.7%?

S&P 500 Breadth

The Advance / Decline Line for the S&P 500 continues to track the index in lock step, lending a breadth confirmation to the record highs that have been reached this week.

The percentage of stocks in the S&P 500 which are trading above their respective 200-day moving averages is currently 94.06%. As we noted last week, it is not often that this metric exceeds the 90% threshold. While this reading is a confirmation of the long-term trend, the near-term could be a bit choppier. Looking back to 2011, when the percentage is greater than 90% and the S&P 500 is trading above its own 200-day moving average, the index is higher 21-days (one month) later 57% of the time for a median return of 0.45%. N = 113 since January 2011.

Looking at the percentage of stocks in the index trading above their respective 50-day moving averages, we can see the reading is 90.50%. The index is trading above the 50-day moving average which has acted as support to recent pullbacks. When the percentage above their 50-day moving averages is greater than 90% and the index is above its own 50-day moving average, the S&P 500 is higher 21 days later 56% of the time with a median return of 0.35%. N = 112 since January 2011.

We will also note that this metric has broken above a declining trend line from the breadth peak that was the index was rebounding from the pandemic lows.

The percentage of stocks that are above their 20-day moving averages is currently 82.57%. Since September 2010, when this metric is greater than 80% and the index is above its 20-day moving average, the S&P 500 is higher, 21 days later, 67% of the time for median gain of 1.22%. N = 447 since November 2010. Investors who wanted to make a bearish argument would point out the series of lower highs for this indictor even as the S&P 500 has set records this week.

NYSE Breadth

New York Stock Exchange Breadth improved on the week. The Advance / Decline Line traded at a record yesterday. In the short-term, the percentage of stocks above their respective 20-day moving averages has been marking a series of lower highs but has regained the 60% level. In the intermediate-term, the percentage of stocks above their 50-day moving averages continues to hover near the 60% level. The percentage of stocks above their 200-day moving average is 71%. For these measures of trend breadth, readings over 60% signal that a healthy majority of stocks are in uptrends for their time frame.   

Another way to think about market breadth is to look at the performance of the S&P 500 on an equally weighted basis relative to the market cap weighted S&P 500. From 2017 – 2020, the ratio was declining, pointing to more pronounced leadership from the largest stocks in the index. However, that dynamic began to shift throughout 2020.

The ratio is trading into a key level of resistance, as we noted last week, and has thus far not been able to break through. In our note yesterday, we highlighted the fact that small caps were beginning to breakdown relative to large caps. The Equal Weight to Cap Weight ratio tells a similar story. Perhaps leadership is shifting back in favor of the largest stocks in the market?


Breadth metrics remain supportive of the uptrend in equities but there is scope for the road to become bumpy in the short-term based on the elevated measures for the S&P 500.
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