From the desk of Willie Delwiche.
The S&P 500 has now declined for seven consecutive weeks and on Friday passed the 20% pullback threshold (and on cue “Bear Market” headlines sprouted like dandelions in Spring). This is the index and its so-called “generals” (the mega-cap stocks that have the greatest weighting) catching down to what has been happening beneath the surface for months. Coming into this week, the average NYSE stock was down over 30% from its high, with the average NASDAQ stock down more than 45%. This week brings us to 26 consecutive weeks of more stocks making new lows than new highs.
The mega-cap S&P 100 (OEF) is making new lows while the small-cap S&P 600 (IJR) is not. Even more dramatic is the ratio between IJR and OEF (small-caps / mega-caps). Here, the May low was above the April low, which in turn was above the February low. The pattern of higher lows is established and the ratio is testing its March highs. While the headlines are about weakness in the index, the story is that relative strength is being established beneath the surface.
