Below we take a look at breadth as measured by the percentage of stocks trading above their 50-day moving averages in the S&P 500 and its ten sectors. Breadth helps investors see how much the stocks that make up various indices or sectors are participating in rallies or declines. It is generally thought that the better the underlying breadth, the healthier the rally, and vice versa.
We have noted numerous times during the most recent run-up to new highs for the S&P 500 that underlying breadth has been weak. As shown in the first chart below, the percentage of stocks in the S&P 500 trading above their 50-day moving averages made a lower high during the most recent rally. Two prior rallies over the last year saw much better breadth readings. As it stands now, 69% of stocks in the S&P 500 are trading above their 50-days, and the reading is really starting to look like it's rolling over.
(Click charts to enlarge)
Below are breadth readings for the ten S&P 500 sectors. At the moment there is quite a bit of difference between the sectors with the best and worst breadth readings. At 98%, the Energy sector has far and away the highest percentage of stocks trading above their 50-days, and it is really helping the overall market stay afloat. Somewhat surprisingly, the Financial sector has the second highest breadth reading at the moment at 88%. The Industrial sector ranks third best at 81%.
There are three sectors with readings under 50% at the moment. The Telecom Services sector is one of them at 33%, but this has a minimal impact given that the sector is only made up of nine stocks. The other two are the two Consumer sectors -- Consumer Discretionary and Consumer Staples. Consumer Discretionary doesn't look all that bad at 46%, but the Consumer Staples sector looks really weak with just 27% of stocks above their 50-days. One of the reasons for the weakness in Staples recently has to do with earnings season, which we looked at in last Friday's Week in Review newsletter. For investors in consumer stocks, hopefully the back half of earnings season is better than the first.