[Chart of The Week] Breadth of Momentum Struggles At '18 Highs

Another thing I want to highlight is the fact that our breadth of momentum readings on this rally have not been able to exceed the 2018 highs. While not necessarily surprising given index prices remain below their '18 highs, we'd prefer to see breadth make new highs ahead of price.

That's not the case here.

Below is a chart of the Nifty 500 along with the percentage of its components with momentum getting overbought. This reading recently spiked above 20%, but has yet to exceed its 2018 highs like we're seeing in many US stock market indexes.

Click on chart to enlarge view.

In the Nifty 100 we did see this measure marginally exceed last year's highs, but Midcaps and Smallcaps did not. This is just another measure that highlights the strength of Largecaps relative to the rest of the market.

I spent the weekend updating our Member-Only Chartbooks and saw a lot of bearish momentum divergences among even the strongest names.

A good example here is UPL Ltd., which is breaking out of a multi-year base, but is extended from its 200-day moving average as momentum diverges.

The weight of the evidence continues to suggest that stocks are extended in the short-term and that if we're patient we'll see more attractive entries within these long-term uptrends.

Maybe being conservative is the wrong call here, but I don't see any reason to be super aggressive on the long side except for individual stocks where our risk is extremely well-defined and reward/risk skewed in our favor.

With that said, this week's price action should be a good indication of how things are going to resolve themselves in the near-term.

We're watching closely.

Thanks for reading and let us know if you have any questions!

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Allstarcharts Team