Lack of follow through evident beneath the surface
Risk Off Environment persists
Defensives gain strength while Value & Growth stumble
Last month’s equity market bounce was impressive at the moment. But it has failed to produce the sort of strength that argues in favor of a broadly-based “risk on” environment. Short-term upside surges have not been followed by breadth thrusts in our work. Despite a handful of days in which new highs outnumbered new lows, it has not been consistent. We are now at 20 consecutive weeks of more new lows than new highs and our 10-day net new high advance/decline line has been falling since November. Our weight of the evidence dashboard suggests a cautious approach remains warranted.
At this point, it seems evident that the degree of the March move higher was as much a function of the weakness that preceded it as anything else. We need to see evidence, from our “risk on - risk off” indicators as well beneath the surface of the indexes before concluding that we have moved beyond a market for managing risk. One example of such an improvement would be seeing the average stock (on the NYSE or NASDAQ) get closer to its highs than it is to its lows. Currently, the average NASDAQ stock is 15% above its lows but is still nearly 40% below its high. On the NYSE, the numbers are less extreme (the average stock is 18% above its low but 26% below its high) but are still tilted lower.
