Large-Caps recently charged back to fresh all-time highs, but the Small- and Mid-caps are still facing some serious overhead supply.
As always, we’re snooping around our market internals chartbook to see what’s really happening underneath the surface in these areas, and whether internals agree with the price action in these smaller market-cap indexes. And even more importantly, if they support, or disagree with the new highs in Large-Caps.
We'll also answer the question: "Just how bad is the recent deterioration in breadth in some of the weaker indexes?"
We have been getting fewer new highs for a while now, but after such extreme initiation thrusts this isn’t too unordinary, and nothing to cause huge concern.
One of the most telling and obvious risk-on indicators would be the Nifty Small Cap 100 index. Why is that so?
Because when you look at a market rally, the longevity of that particular rally can be gauged by market participation. This is something that should be viewed closely. If a particular index is making new highs, how many stocks are contributing to that move?
Is it a handful? Is it a majority of the stocks? These are data points that will hint at the inherent sentiment of the move.
So let's take a look at what the Small Cap-100 new highs are telling us.
Breadth indicators are important to see the internal structure of a market move. We get valuable insights from what we see that can help us determine the strength of the trend.
First up let's take a look at the most immediate tactical view. Let's take a look at the % of stocks making new highs//lows over a 10-day period. What we find is that as the Small cap 100 index clocked new highs, the % of stocks making 10-day highs contracted. On the other hand, we got a minor expansion in the % of stocks making 10-day lows.
It's now a year later, and we're still seeing them... In fact, the S&P 500 recently registered its highest percentage of new 52-week highs in history - absolutely crushing the historic reading we saw in Q4 of last year.
So, why is this important?
These extreme readings are as bullish as it gets and are a very common characteristic of the early innings of a fresh bull market. It's as simple as that, right?
For me, it's not just about one indicator or one chart.
It's a weight of the evidence game.
Since March, the bet has been Messy For Longer. We've expected a choppy environment. That's what the weight-of-the-evidence and history suggested.
But now what? Are these consolidations going to resolve lower? Or Higher? Or just stay messy for even longer?
That's what makes this all so great. I don't know. And neither do you. No one does.
It's a beautiful thing.
So as I weigh the evidence to decide rollover or breakout, I come to a series of divergences that put this stock market in quite the predicament.
With S&Ps and major indexes hovering near all-time highs, we're just not seeing it from the components themselves. Here's the Russell3000, for instance, seeing fewer and fewer new highs:
The process of our analysis is such that we look at a variety of charts in order to arrive at a view at any given point in time. To make sure we're identifying new trends that are developing in the market, we have several breadth indicators that we track.
As we already know, the market has been in a bit of a mess off-late. Within this market move, different sectors have taken leadership- almost as if playing a game of musical chairs.
Over the weekend when I was going through the usual suspects (charts) I noticed a slight change in market activity. So here I am talking about it!
But there are still areas of the market with strong & expanding internals. Breadth data continues to be mixed just like we’re seeing from many asset classes right now.
At the beginning of each week, we publish performance tables for a variety of different asset classes and categories along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
The bullish picture still lies as a structural backdrop.
But now, we're seeing mixed signals as many areas have become increasingly vulnerable in recent weeks. This is all taking place as defensive assets have found a footing for the first time in over a year, while risk-on assets approach logical levels of supply.
Recent weakness has been particularly isolated in former leadership groups, like Small-Caps and Growth-heavy areas.
At the beginning of each week, we publish performance tables for a variety of different asset classes and categories along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
The weight of the evidence still suggests it's prudent to be a buyer, not a seller, of risk assets for more meaningful time horizons.
Shorter-term, the market looks increasingly messy. For the first time in over a year, defensive assets are beginning to stabilize at logical levels of support, while stocks and major risk groups achieve our upside targets. Even a handful of some key Intermarket ratios are potentially diverging from the broader averages.
