The S&P 500 hit another new all-time high yesterday; something it has accomplished once a week on average this year. It has been quite the run higher since November 2023 – moving higher by roughly 30% (although Nvidia alone is responsible for 1/3 of that gain!). However, since April, the general is starting to lose some of its troops. The chart below shows the percentage of stocks above their own 200-day moving average, which is one measure of market breadth, in blue and below that in green is the S&P 500. The latest move to new highs in the S&P 500 has been accompanied by fewer and fewer stocks above their own 200-day MA. In other words, breadth is slightly weakening as we enter the summer months.
Source: Stockcharts.com, as of 6/10/2024
This lack of participation is also leading to non-confirmation of the new high by the average stock. The S&P 500 in red has moved to a new high, but the equal weighted S&P 500 (ETF:RSP) in blue has not. The longer this persists, the greater the chance of another market correction in the near future. 3Fourteen Research conducted a study comparing new all-time highs in the S&P 500 that were confirmed by the equal weight index and those that were not. This study showed the longer the equal weight index remained below its peak in April the more distrustful investors should be of the move higher in the S&P.
Source: Stockcharts.com, as of 6/10/2024
Source: 3Fourteen Research, as of 6/6/2024
There is still time for the equal weight index to move to a new high and for market breadth to improve. Who knows, maybe tomorrow’s Fed Day lights a new spa? For now, though, this is a small downgrade to market technicals in our weight of the evidence approach. Staying on the right side of trends is still a dominant consideration, and the trend is higher, so the benefit of the doubt goes to the bulls.
Welcome to the summer months, it seems it will be interesting.
Sean Dillon, CMT, CFTe
SVP, Investment Strategy
CW Advisors, LLC (“CWA”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. For additional information, please visit our website at cwadvisorsgroup.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with CWA’s CRD #310873.
This note is provided for informational purposes only. CWA believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on CWA’s research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.
Comments are closed.