Examining breadth on the NYSE – and I measure this market internal as the percentage of stocks advancing – we can see that it is deteriorating. The 10-day moving average of the percentage of stocks advancing (Green line) has been falling since late November even as the S&P 500 (black line) has been moving up. When breadth moves below 50% (less than half the stocks are advancing) the S&P 500 is likely to fall. As of Friday, the 10, 20 and 50-day moving averages of the percentage of stocks advancing are all above 50% so we may still have some upside left, but perhaps not much.
The percentage of stocks making new highs has been falling since early February and the percentage of new-highs vs. new lows is now flat and trending slightly down. Market internals are sending warning signals.
Market action is warning us as well. An extreme calm before the storm was observed
10-days ago warning that we may have already seen the top or one may occur in less
than 10-days from now (on average).
Over the last month the Morgan Stanley cyclical index has
underperformed the S&P 500 by about 2%.
The cyclicals are usually more sensitive to downturns so this may be an
early warning too.
Sentiment is quite stretched as I have written on many occasions
recently.
To summarize, we’re either in-correction or one is coming
soon.
I’d still like to see the S&P 500 move another 2%
higher and have a strong move up (say around 1%); at that point I’d feel more comfortable
calling a top, but the markets may not oblige, especially if the top was
actually 4-days ago.
MARKET RECAP
Friday, the
S&P 500 finished up almost 1% to 1,516 (rounded).
VIX was down 7%,
to 14.17
NTSM
Friday, the NTSM analysis remained HOLD at the close.
MY INVESTED POSITION
Based on a BUY
signal 7 of 9-days, and more importantly, consecutive closes above the prior
high of 1466, I moved into the stock market at 1471 on the S&P 500 on 14
January. I am currently invested in a
range of near 50% invested in stocks.
