Last week, we noted that we were looking for more from the new highs data; unfortunately, for equity bulls, we did not get more. In fact, the bulls failed to capitalize on breadth improvements over the prior two weeks, and that has given the bear an opportunity to confirm the fact that they are in control of trends in the equity market. Today’s note looks at a few charts that highlight that they are not ready to give up that control.
Reason Number One: No Capitulation Yet
We have shown this chart before, but we want to reiterate that when the S&P 500 sees its drawdown exceed 10%, capitulation is often marked by when the difference between the percentage of issues on the NYSE making new 52-week highs and 52-week lows exceeds -40%. That has not happened yet.
Reason Number Two: New Highs in the Percentage of Stocks in “Correction” or “Bear Market”
While I know that a stock cannot be in a bear market, only indexes can do that; I am using the term here to make a point. The percentage of stocks in the S&P 500 and NASDAQ 100 that are down 10% and 20% from their respective 52-week highs continues to make new highs for the cycle.
Reason Number Three: Advance/Decline Line Confirmation
The Advance/Decline Line for the NYSE continues to trade in a downtrend, recently making a new low for the cycle. We can see that its one-year range position is currently 0.04, indicating that the current reading is near the low for the past year. At the same time, the S&P 500 has also made a new low for the cycle, and its one-year range position is currently 0.07. Both the A/D Line and the Index are trading at their one-year lows. That is confirmation of the bearish price trend. Bulls will want to see a divergence where the A/D Line moves higher in its range even if the S&P 500 is moving lower.
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