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While the S&P 500 is just off its all-time closing high, as shown below, just 73% of the stocks in the index are currently above their 50-day moving averages. This is a much weaker breadth reading than we saw back in January when more than 90% of stocks in the S&P were above their 50-days. Clearly, less stocks have participated in the most recent rally. Bulls will argue that this leaves more room to run on the upside, while bears will argue that it's a sign of weakness. We tend to lean towards the bearish argument on this one.

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An even more bearish signal is the fact that all the defensive sectors are showing the strongest breadth. As shown below, Consumer Staples and Utilities have by far the highest percentage of stocks above their 50-days out of the ten sectors. Cyclicals like Technology, Industrials, Consumer Discretionary, Energy and Materials, on the other hand, have weaker than average breadth readings. During rallies, you want to see the cyclicals leading and the defensives lagging. When it's the other way around, it suggests that investors are getting "defensive" even though the market is moving higher. Definitely something to keep an eye on here.

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Source: Weak Breadth