NASDAQ 100 Breadth
Improvements

In our daily note two weeks ago, we noted subtle improvements in breadth metrics for the NASDAQ 100. While we are mindful that improvements in breadth have tended to be bull traps in 2022, we want to highlight other metrics that are moving in the right direction while laying out the price action that we want to see from the index to signal a change of trend.

Advance Decline Line

The Advance/Decline Line for the NADSQ 100 has been under pressure for the majority of 2022. However, there is a subtle shift playing out that is worth noting. The June low for the NASDAQ 100 index was not confirmed by a new low for the A/D Line, which made a higher low. This divergence was followed by the A/D Line regaining the 50-day moving average. The divergence is not a “signal” to act, rather it is a waving flag, urging investors to take notice. Should the index retake its 50-day moving average and the early June peak, a change of trend is likely taking place.

New Lows

The trend in new six-month and 52-week lows has been another pain point for the NASDAQ 100 all year. Reprieves in the bearish metrics have been short-lived and followed by spikes that have often led to higher highs for the 10-day moving averages. However, the most recent spike in new lows resulted in lower highs for the 10-day averages. This has left another divergence in place that warrants attention.

Corrections and Bear Markets

Finally, there has been a small improvement in the percentage of stocks in the NASDAQ 100 that are in corrections (down >10% from a 52-week high) or in bear markets (down >20% from a 52-week high). A sustained move lower in these metrics as the index clears the hurdles highlighted above would set the stage for a reversal of the bearish trend.