Weakening Market Breadth

JC Parets
February 7, 2024

Market breadth can be a funny thing.

People think it's easy. People think they can just pull up some indicator and it's always going to tell them whether market breadth is good or bad.

But that's not how it works. Some indicators are more valuable in certain environments than others.

For example, the new 52-week lows list is not very helpful right now, because there isn't much going on there. But in the summer of 2022, as the new 52-week lows list was peaking, that was actually one of the most valuable metrics.

Also the percentage of stocks getting oversold is not very helpful now either. But again, in the summer of 2022 it was.

There is a time and a place for everything.

But you want to know the hack?

The life hack here is actually counting.

Remember all these fools telling you all of last year how "bad" market breadth was?

It wasn't. Anyone who told who it was simply never bothered to count. Or more maliciously, they lied to you. That happens too.

But throughout last year, market breadth continued to improve. Sector rotation dominated the equities market.

None of that is bad.

It's what's happened since December that is the deterioration we regularly see near turning points.

The real turn took place at the end of 2023. So when you look at the $QQQ and $SPY, each of them are up about 4% so far in 2024.

However, the Russell2000 Small-caps, $IWM S&P400 Mid-caps $MDY, Equally-weighted S&P500 $RSP, Developed Markets Ex-North America $EFA and Emerging Markets $EFA are all down for the year.

What also really stands out is that Consumer Discretionary indexes are down this year as well - both the Market-cap version $XLY and the Equally-weighted version $RSPD.

Market breadth stopped improving last year.

More importantly, since late last year, market breadth has NOT stopped deteriorating.

That's a big reason why we're so short equities.

Check out exactly what we're doing in our LIVE Monthly Conference Call from this week.

Premium Members can check out the replay here and download all the slides.

Email me and let me know what you think!

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