Key Points
- NYSE A/D Line Rallies but Holds Below Resistance
- S&P 500 A/D Line Retakes the 50-Day Moving Average
- S&P 1500 Has a Choppy A/D Line and Work to Do
- Small Cap Breadth Remains a Problem
- There is a Big Difference in the NASDAQ Indexes
NYSE Advance/Decline Line
The NYSE’s Advance/Decline Line remains below broken support and the declining 50-day moving average despite the rally in the S&P 500 that has brought the index back toward its moving average. We continue to view Monday’s lows for the S&P 500 as the key level to watch, especially as this indicator continues to weaken.
S&P 500 Advance/Decline Line
The S&P 500’s Advance/Decline Line has exhibited a stronger rebound than the NYSE, regaining the 50-day moving average. We also note that the trend for this indicator is still rising. The S&P 500, however, remained below its declining 50-day moving average. There has been a general tendency for the A/D Line to make new highs ahead of the index. Should equities build on recent strength (a lofty task on the heal of a disappointment from FB last night), new highs for the A/D Line should be high on a bullish checklist.
S&P 1500 Advance/Decline Line
The Advance/Decline Line for the S&P 1500 has not seen the same degree of improvement as the S&P 500. Here the indicator remains below the declining 50-day moving average despite an improvement over the past three trading days. The S&P 1500 also remains below its 50-day moving average. Thus far, neither the index nor the indicator has broken key support levels, but we are watching them closely.
S&P 600 Advance/Decline Line
Unlike its larger brother, the S&P Small Cap 600 Advance/Decline Line has made lower lows and lower highs and finds itself in a weak position, below the 50-day moving average. The index itself remains in a consolidation that has marked trading for nearly a year; however, we have been noting for some time that relative trends favor Large over Small. That view is confirmed by the breadth dynamics highlighted here.
NASDAQ 100Advance/Decline Line
The NASDAQ 100 Advance/Decline Line is in a Neutral position as it trades below the 50-day moving average but has not yet broken key support. The NASDAQ 100 Index has staged a rebound from an important support level and remains below a declining 50-day moving average. This index will be but to the test today, and last week’s lows can be used to manage risk should they come into play.
NASDAQ Composite Advance/Decline Line
The A/D Line for the NASDAQ Composite Index, which is much broader than the NASDAQ 100 Index, is in freefall. The index is below the 50-day moving average and recently broke below the levels that were reached in the depth of the COVID pandemic selling in March 2020. The index is also below the moving average and has not sustained as much damage as the A/D Line. This begs the question, will breadth improve, or will the index fall apart? While it is impossible to know the answer, it is possible to use last week’s lows as a risk management reference point.
Take-Aways:
The key observation here is that breadth is still a concern for investors. We note that the broader and/or smaller the index, the more damage that has been done under the surface of the index. This is not a new dynamic; we have been highlighting it for months. However, it is interesting that a strong three-day rally for the major averages did not do much to repair the damage. We continue to view last week’s lows as a key risk management reference point.
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