From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Let’s flip the script this week and take a more granular approach to our analysis of market internals.
In recent months, we’ve written at length about deteriorating breath. While it’s been our position that the divergences in these indicators are normal following an onslaught of initiation thrusts like the ones we had last year, the lack of participation beneath the surface was drying up to levels that were simply not sustainable.
This lack of confirmation has caused many to question the new highs from the S&P 500 and other major US averages. But, the major averages have masked the pervasive weakness we’ve already been experiencing beneath the surface this year.
In last week’s post, we discussed this weakness in breadth and posed the following question:
Perhaps we’ve already seen the market correct beneath the surface. Maybe that was it…
The major averages are simply not a good representation of what US stocks have been doing for the past 6 months. So why do weak internals have to result in any significant downside for these indexes?
We don’t think they need to. In fact, we’ve seen breadth improve in recent weeks and we’re now seeing expansion in favor of the bulls again.
In today’s post, we’ll discuss these new developments with a focus on those areas that had been exhibiting the weakest internals – value and cyclical groups.