Breadth Improves But Overall Market Is Tired

As a bellwether benchmark, the S&P 500 had been trading lethargically with the cumulative breadth line losing ground to the index, something we hadn’t seen in quite some time. Today that changed with the cumulative S&P 500 index advance decline line once again reclaiming pole position:

But other than that, there is little else that makes me wildly bullish here. As I mentioned previously, the ratio of new 52-week highs relative to 52-week lows has been weak suggesting that there are too few stocks breaking out.

The stock market fell in empathy with the commodity markets, reversing a trend that could have taken it to the completion of the reverse head and shoulder pattern. We bounced off the neckline and it looks like we’re going to tread water for a bit.

The percentage of S&P 500 index components above their 50 day moving average is acting weak. During a high powered momentum thrust we expect to see this indicator pushed above 85-90% and stay there. And during normal strong rallies this indicator gets pushed to the extreme, to then snap back with the market. But that is far from what is happening now:

The recent rally has not been able to push enough stocks above their 50 day moving average. This suggests that many stocks are trading close to, or just below their medium-term trend. In other words, resting within a resistance area.

Due to these market internal indicators, I expect the market to go sideways for now. Eventually it will head higher but not after pausing to digest the recent rally within a narrow congestion area.

As well, if you look on a long term chart for the S&P 500 index you can also see that from the 2007 bull market top to the 2009 bear market low the market has now retraced to the 78.6% Fibonacci level.

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One Response to Breadth Improves But Overall Market Is Tired

  1. Tiho says:

    “Eventually it will head higher…”

    Are you betting money on this call?

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