Breadth Takes a Nosedive

Below we highlight one-year charts of the percentage of stocks above their 50-day moving averages in the S&P 500 and its ten sectors. After coasting along at 80% or higher for a couple of months, the percentage of stocks above their 50-days in the S&P 500 has fallen to 53% in a matter of days. Had we not rallied off the morning lows today to move into positive territory, the percentage would have probably fallen below the 50% threshold for the first time since mid-July.

While the S&P 500 as a whole remains above 50%, there are three sectors that currently have less than 50% of stocks trading above their 50-day moving averages -- Industrials (43%), Materials (47%), and Utilities (31%). The Financial sector is currently right at 50%. Constumer Staples has held up the best with a current reading of 71%, while Energy ranks second best at 60%.

Comments

[ebworthen:]

Yes, this means low volume sector value chasing day traders are selling or getting a lot more cautious.

Will the "money on the sidelines" jump back into the market?

Perhaps some individuals and/or fund managers did that this morning thinking this was a dip to buy in.

My personal feeling is that the average American listens to the news and they realize that this is not a recovery in the economy but rather a Wall Street phenomenon.

Lower employment, a strained SS system from early retirement, geo-political conflict combined with a well meaning yet naive President, and bailouts means that taxes will be going up, employment down further, and eventually higher costs and inflation.

Those of us that remember Jimmy Carter and the 1970's know that one.

Oct 02 08:26 PM

[Joe Duggins:]

One really has to question the apparent current strength of the market, which doesn't tally at all with the underlying fundamentals.

On the other hand, whilst risk seems to have diminished somewhat and underlying confidence seems to be returning, the after-tax return on cash is pathetic; hence driving the run into equities, imo.
The 64-dollar question is really - what happens to equities when commerce genuinely recovers and interest rates start to rise?

Personally, I think the markets have a lot to wait, before we'll resume the bull phase, saying that, the markets had been short-term extreme oversold levels in March 2009. So it was only a matter of time before fund managers and big players bought back their long term positions which is what we may be seeing now.

My biggest worry in this rise is that we haven't had the odd 50pt down day, I would feel a lot more comfortable had this been the case, my worry is that people are still very much nervous so any drop off in prices, could see punters banking profits pretty quickly, which would exacerbate a fall, obviously this is just me thinking aloud and hopefully the indices can carry on romping away, got myself in a nice trailing trade on Deutsche Bank today, every 30 points lost I am stepping my stop down 10!

I'm reluctant also to believe the number of predictions analysts are making on the economic recovery (or not) when they use the history books as evidence. Isn't the global market a fundamentally different one from the last recession and every one before that? For example, here I am writing with instant access to the market from my living room... With thousands like me doing something similar, the reactions to economic factors, especially news, general optimism and/or skepticism, must have an impact never ever witnessed before.
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Oct 03 06:25 AM

[vman650:]

Not only has volume been poor but on up days the advance decline numbers have been barely positive. There have been days when declining stocks have led advancing stocks by a considerable margin but the nasdaq has ended in positive territory. It is difficult to rule out the charge of manipulation based on what the numbers are saying.

Oct 03 08:31 AM

[Moon Kil Woong:]

Its funny how breadth drops right when volume goes up. This rally has been mostly driven by some very strange mass trading, especially in too big to fail financials.

Oct 03 11:00 PM