Key Points

  • Hardware Is Not the Spot in Technology
  • NYSE Breadth Weakens; New Lows Not Building
  • S&P 500 Breadth Is Mixed; Remains Supportive
  • Small Cap Metrics Are Resilient; Supports Recent Breakout

Chart in Focus

While we have been bullish on pockets of the Technology sector such as Semiconductors and Software, one area that warrants caution is hardware. The S&P 500 Technology Hardware & Equipment Index has not made a new high with the broader equity market and is stuck in a choppy consolidation around the 50-day moving average.

On a relative basis, the group is weak, below the declining 50-day moving average. In short, there are better opportunities out there.

NYSE Breadth

The NYSE’s Advance / Decline Line is pulling back from record levels along with the index. For now, the breakout level is holding, and both remain above rising 50-day moving averages. If this remains the case, the path of least resistance is to the upside for the indicator and the S&P 500.

The NYSE’s Advance-Declining Volume Line has held near-term support above the rising 50-day moving average. Taking out the June highs is the next step that would further lend a breadth confirmation to the strength that we see in equity prices. This view is unchanged on the week.

Despite a small uptick with selling pressure in the market over the past two days, the 5-day moving averages of issues on the NYSE making new 52-week and six-month lows are down on the week. We have been making the case that there have not been the types of build-ups in the new lows that are common ahead of equity market declines. That case is firmly in place this week as well.

The flip side of new lows is new highs, and the five-day moving averages of stocks on the NYSE making new six-month and 52-week highs continue to trend higher. Yes, there has been a small downtick over the past two days, which is part of the natural ebb and flow of the market.

The percentage of stocks on the NYSE that are trading above their respective 200-day moving averages has moved from 50% last week to 49% this week and is trying to turn the corner and move higher.  Breaking above this level and retaking the 60% threshold would add another bullish breadth signal to equities.

The index remains above the rising 200-day moving average.

The percentage of issues on the NYSE trading above their 50-day moving averages remains above the declining trend line, which dates to last November. The metric has moved from 65% last week to 61% this week, keeping a healthy majority of stocks in intermediate-term uptrends.

As is often the case in a pullback or a pause, the short-term metrics see the most pain. The percentage of stocks on the NYSE trading above their 20-day moving averages is no exception this week. The metric fell to 57% from 70% last week and is back in the consolidation. Equity bulls want to see a quick recovery here. The index remains above its rising 20-day moving average.

S&P 500 Breadth

Breadth metrics for the S&P 500 were mixed on the week:

  • Advance/Decline Line: Trading near the highs, above the rising 50-day moving average.
  • Percent Above Their 200-Day Moving Average: 74% from 73% last week, looking for a breakout.
  • Percent Above Their 50-Day Moving Average: 73% from 70% last week, breaking out.
  • Percent Above Their 20-Day Moving Average: 65% from 73% last week.

SmallCap Breadth

Breadth metrics for the S&P 600 Small Cap Index were mixed/flat on the week.

  • Advance/Decline Line: Above the 50-day moving average and short-term resistance.
  • Percent Above Their 200-Day Moving Average: 63% from 64% last week.
  • Percent Above Their 50-Day Moving Average: 74% from 75% last week, makes a higher high.
  • Percent Above Their 20-Day Moving Average: 72% from 79% last week, makes a higher high.

Take-Aways:

As stocks pause after a strong rally, breadth metrics remain supportive of our view that equity prices will melt up into the end of the year. Near-term weakness that is not able to break key support levels is an opportunity to add equity exposure.

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.