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Key Points

  • Inflation Expectations Ahead of the CPI Report
  • Breadth Metrics Remain Healthy Across Major U.S. Markets
  • Advance/Decline Lines are At/Near Record Levels
  • Small Cap Breadth Improves on the Week
  • S&P 500 Breadth Weakens Slightly

Chart in Focus:

All eyes will be on inflation today with the release of the CPI report at 8:30am ET. Ahead of the report, investor expectations for inflation in the future have begun to moderate. Both the 10-Year and the 5-Year Breakeven Inflation Rates have moved below their respective 50-day moving averages. Further weakness in these trends would imply that investors expect the increase inflation that we have since the pandemic lows will, in fact, be transitory. Should that be the case, there is likely to be an unwind of positions tied to markets that benefit from rising inflation, in particular commodities and commodity-leveraged equities.

NYSE Breadth

The Advance/Decline Line for the NYSE remains in a steady uptrend, trading to another new high this week. The A/D Line is above the rising 50-day moving average, as is the S&P 500. As we have written in the past, new highs for this indicator tend to lead to new highs for the index. The S&P 500 sits just below record levels and odds favor a continuation of the uptrend for equity prices.

Similarly, the NYSE’s Advancing – Declining Volume metric traded to a new high this week and remains above the rising 50-day moving average.

With the S&P 500 trading near record levels, there remains an absence of new lows. The percentage of stocks trading at new 52-week and six-months lows is 0.32% and 0.38% respectively.

The percentage of issues on the NYSE that are trading above their respective 200-day moving averages remains above the 60% mark, holding near the level that was seen last week. Equity bulls want to see this metric continue to move higher from the support level that we identified last week.

The percentage of issues trading above their respective 50-day moving averages is also above the 60% level, after breaking the short-term downtrend that has been in place since last December. This dynamic is playing out as the 50-day moving average for the S&P 500 continues to provide support to the bullish price trend.

The percentage of NYSE issues trading above their respective 20-day moving averages ticked slightly higher this week, to 72.96% from 70.31% last week. The S&P 500 remains above its own 20-day moving average which is beginning to move higher once again.

S&P 500 Breadth

Breadth for the S&P 500 has weakened a bit this week. The A/D Line has turned lower from record levels but remains in an uptrend, above its 50-day moving average. From a trend perspective, the long-term and intermediate-term metrics remain healthy. The percentage of stocks above their 200 and 50-day moving average are 89.31% and 62.38% respectively. In the short-term, the percentage of stocks above their 20-day moving averages has slipped below the 60% mark.

We have been highlighting the strength in Small Caps this week. The breadth metrics support the bullish view with the A/D Line trading to a record high this week. Across time frames, the metrics remains solid as well. Nearly 90% of stocks in the S&P 600 are above their 200-day moving averages. The percentage above their 50 and 20-day moving averages are above 60%.

Take-Aways

For the most part, breadth metrics across U.S. markets remain healthy. The various Advance/Decline Lines remain at or near record levels. From a trend perspective, the percentage of stocks above key moving averages are mostly above the 60% level. Additionally, on the NYSE, we are not seeing a buildup in new lows that would be expected in front of a meaningful move to the downside for equity prices.

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.