[Chart Of The Week] U.S. Stock Market Breadth Has Weakened in April

JC Parets
April 19, 2016

When the major U.S. Stock market indexes are making new highs, you want to see the list of stocks making new highs increasing along the way as well. This had certainly been the case throughout February and March, but has come to a complete halt this month. Looking across the board, the S&P500, Dow Jones Industrial Average, Nasdaq 100, Russell 2000, Mid-cap 400, etc have all made new recovery highs over the past couple of weeks, since our epic bottom in late January/early February. The problem is that 1) all of our upside targets have now been achieved where we wanted to take profits and 2) breadth in the market now stinks.

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Today we are looking at a chart of the list of NYSE Common Stock Only New 52-week highs. It's important to consider what the actual stocks are doing on the NYSE, since half the issues on that exchange are closed end funds, preferred stocks and other types of securities that are not common stocks. In order to get a gauge of stock market breadth, this is just the list of stocks making new highs and as we can see, with all of the major indexes putting in new highs the past couple of weeks, the list of stocks participating has decreased:

NYSE 52-week highs

We've been neutral towards the U.S. Stock Market over the past few weeks as our upside targets got hit. I'm still in the camp that we roll over and if/when we are below former support levels, we can start to lay out short positions. In the meantime, we wait. A bullish development here would be to see the list of NYSE Common Stocks Only New Highs increase and take out last month's high water mark. I think this is the lower probability outcome, but I always want to keep an open mind and try to make an argument counter to my current outlook.

If prices of the indexes start to roll over and break the levels we need to start initiating short positions, we will flip this data upside down and focus instead on the list of NYSE Common Stock Only 52-week lows. This will help confirm the lower lows in price. In the meantime, this deteriorating breadth is something to be concerned about if you are a U.S. Stock Market bull. Since we are no longer in the bullish camp, we welcome this weakening market breadth with open arms and are just waiting for prices to start to fall in order to confirm what the internals are already suggesting.

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