Narrow Breadth
Traders,
Market breadth is a secondary indicator used by technicians that measures the participation in a bull move. When a stock market index like the S&P 500 pushes to a new record, you prefer to see most stocks also notching all-time highs. It’s a healthy sign.
I saw the chart of the day below making the rounds yesterday. It shows that fewer than 50% of the S&P 500’s holdings are above their 50-day moving average – EVEN THOUGH the index is at a record. Needless to say, this is quite unusual and signals narrow leadership. But, I think it makes sense given the nasty downturn suffered by financials, basic materials, and industrials after last week’s Fed meeting.
Fearmongers will point to the last low reading being in 1999 as a significant warning sign. In case you’ve forgotten, 1999 was near a major market top.
Here’s my take. There’s always something to worry about. Maybe this breadth divergence matters; maybe it doesn’t. No matter how many secondary indicators are flashing red or yellow lights, it’s the price that speaks the loudest. So until the price trends of the S&P 500, Nasdaq, and Russell 2000 turn lower, I’m taking warnings like bad breadth with a grain of salt.
#TeamTackle
Chart of the Day
Narrow Breadth
I bet you wouldn’t have guess that fewer than 50% of the S&P 500 components are above their 50-day moving average. It’s extremely rare to see the market at a new high with so few stocks also at new highs. |
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Video of the day
Coach Frank’s Charts
When Coach Frank starts talking Chart Patterns #TeamTackle always leans in and this week is no different, watch this clip from Friday’s Halftime Report where the coaches analyze Frank’s charts and discuss their potential in this clip from Friday’s Halftime Report
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