Key Points
- Further Concentration in the Larger Stocks
- Advance/Decline Lines are Near Record Highs
- Long-Term Breadth Trends are Strong but Diverging
- Intermediate and Short-Term Trends are Weaker
- NYSE Lows are Not Flashing a Warning
Chart in Focus:
Further signs of concentration. We have highlighted this chart for the past two weeks as it shows us how leadership continues to concentrate in the larger names in the S&P 500. Relative to the Cap Weighted Index, the Equal Weighted S&P 500 has moved lower over the past week, further below the flat 50-day moving average. The 14-day RSI of the ratio may be shifting into a bearish regime after making a lower high as price tested resistance at the 2012 lows.
NYSE Breadth
The Advance/Decline for the NYSE is above the 50-day moving average and just below the record high that was reached in the middle of June. While this indicator made a new high ahead of the S&P 500, it is not confirming the high for the index currently but isn’t that far off. Bullish investors want to see the A/D Line advance from this level to get in gear with equity prices.
After finding support at the 50-day moving average, the NYSE’s Advancing – Declining Volume indicator is trying to move higher with equity prices. Here too, the indicator is not confirming the record highs of the S&P 500, leaving a divergence in place which would become an issue should the index fail to hold above its own 50-day moving average.
The 5-day moving averages of issues on the NYSE making new 52-week and six-month lows have moved lower over the past week. Both currently stand at less than 1%. As we wrote last week, equity bulls want to see these averages remains near the bottom of their respective charts, as a rise would signal the prospects for a move lower in stock prices broadly.
The percentage of issues on the NYSE that are trading above their respective 200-day moving averages is roughly flat with the levels that were seen last week, holding above support. The bullish side of the argument is that this metric remains above 60%. The bears will argue that the series of lower highs points to weakening breadth and a lack of confirmation of the record highs for the S&P 500.
The percentage of issues on the NYSE that are trading above their respective 50-day moving averages is also relatively flat with last week’s levels. The metric is holding below the 60% mark and continues to make lower highs. The lack of confirmation of the record highs for the S&P 500 is notable.
The percentage of NYSE issues trading above their respective 20-day moving averages is holding below 50% once again this week. With the S&P 500 continuing to grind to the upside, we would expect to see more improvement in this measure of short-term breadth.
S&P 500 Breadth
Breadth metrics for the S&P 500 paint a similar picture to what is seen on the NYSE. The Advance/Decline Line is near record levels but is not yet confirming the record levels of the index. The percentage of stocks above their respective 200-day moving averages is strong but has been making lower highs since topping in April. The percentage of stocks above their 50 and 20-day moving averages are both below 50%.
Small Cap Breadth
Small Cap breadth tells the same story. The Advance/Decline Line is holding above the 50-day moving average but is not confirming price highs. The percentage of stocks above their 200-day moving averages is over 80%, but we note the series of lower highs and lower lows. In the intermediate-term, the percentage of stocks above their 50-day moving averages is weak at just over 45%. The short-term trend is even weaker at less than 35%.
Take-Aways
Across the major markets in the U.S., breadth metrics have failed to confirm record price highs. We view these divergences as a “warning flag”, but the divergence needs to deepen for us to get concerned. As with all divergences, they must be confirmed with a breakdown in price. For now, the key levels to watch for the S&P 500 are the 50-day moving average and near-term support at the 4,250 level.