Key Points

  • Stock Up on Food & Beverages Ahead of New Year’s Eve?
  • NYSE New Lows Continue to Decline
  • New Highs Begin to Move Higher
  • S&P 500 Breadth Data Sees Vast Improvement
  • Small Cap Metrics Are Better but There Is Still Work to Do

Chart in Focus

The S&P 500 Food, Beverage, & Tobacco Index will enter the final trading days of the year at record levels following a breakout and successful retest. The rising 50-day moving average points to a bullish trend, and odds favor a continuation to the upside. The relative trend is beginning to show signs of improvement as well.

NYSE Breadth

The NYSE’s Advance/Decline Line has regained broken support and will now set its sights on the declining 50-day moving average. At the same time, the S&P 500 is trading at record highs. This leaves a divergence in play, but, as we noted last week, divergences are simply a condition, and the signal would only be triggered if the index breaks below key levels.

The NYSE’s Advance-Declining Volume Line has a similar look as the Advance/Decline Line, trading below the 50-day moving average after regaining broken support. There is also a divergence between the index, which is trading at record levels, and the indicator.

The five-day moving averages of issues on the NYSE making new 52-week and six-month lows have moved lower over the past week, a second consecutive week of declines. Additionally, the moving averages have cut below the mid-December trough. Mounting new lows has been one of the pillars of the bear case for equities for the past two months; what happens if that leg of the stool is kicked out?

While the new lows data has been improving for the past two weeks, we are just now beginning to see improvement on the new highs data. The five-day moving averages of stocks on the NYSE making new six-month and 52-week highs have turned to the upside. We are now on the lookout for a break above the early November peaks to solidify the improvement that we have been noting in breadth.

The percentage of stocks on the NYSE trading above their respective 200-day moving averages moved to 38% this week from 33%. Once again, we want to see more improvement in this metric as the S&P 500 trades at record levels. For now, the downtrend of 2021 remains in place for this indicator.

The percentage of NYSE issues trading above their respective 50-day moving averages has moved to 40% from 31% last week. Again, we want to see more improvement in this metric as the index trades at record levels, above its 50-day moving average. However, breadth continues to move in the right direction.

The percentage of stocks trading above their respective 20-day moving averages rose to 62% from 48% last week as the S&P 500 moved further above its 20-day moving average. This is a sign of follow-through on the strength that we have noted for the past two weeks.

S&P 500 Breadth

Breadth metrics for the S&P 500 improved a lot over the past week.

  • Advance/Decline Line: Traded to a new high.
  • Percent Above Their 200-Day Moving Average: 71% from 65% last week.
  • Percent Above Their 50-Day Moving Average: 70% from 55% last week.
  • Percent Above Their 20-Day Moving Average: 89%% from 65% last week.

SmallCap Breadth

Breadth metrics for the S&P 600 Small Cap Index have improved over the past week.

  • Advance/Decline Line: Retakes the 50-day moving average.
  • Percent Above Their 200-Day Moving Average: 54% from 46% last week.
  • Percent Above Their 50-Day Moving Average: 53% from 41% two last week.
  • Percent Above Their 20-Day Moving Average: 82% from 63% two last week.

Take-Aways:

The “bad breadth” thesis continues to erode for the bears as metrics improve across the board. The key development is the fall in new lows on the NYSE for the second consecutive week. At the same time, there has been an uptick in new highs on the NYSE. S&P 500 metrics were vastly improved, and even the Small Caps are beginning to show some signs of life.

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