Narrowing market leadership and other technical indicators suggest that the S&P 500 could be due for an
Although the S&P 500 rallied to all-time highs on a number of occasions between late 2014 and May 2015, the number of stocks supporting these moves has dwindled.
This imbalance has become even more pronounced. When the index rallied to within 1 percent of its all-time high from August to early November 2015, the proportion of equities listed on the New York Stock Exchange (NYSE) that traded above their 200-day moving average peaked at 38 percent.
In contrast, when the S&P 500 rallied to its all-time high in May 2015, 50 percent to 59 percent of NYSE-listed stocks traded above their 200-day moving average.
We continue to regard the S&P 500’s recent rally as one of the final gasps of this bull market and worry that a bear could ravage stocks in the first half of 2016.
The S&P 500 crashed through its 200-day moving average last week, but has rallied to retest this level. In contrast, the Russell 2000 and other indexes that track the performance of small-capitalization stocks have continued to lag.
And only 29 percent of the names listed on the NYSE trade above their 200-day moving average—down from a peak of almost 38 percent in early November.
From a technical standpoint, one of the few bullish cases to be made for stocks is that we find ourselves in a period of modest seasonal strength. Accordingly, the selling pressure may not hit until the new year, when portfolio managers and traders return from their holidays.
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Elliott and Roger on Jan. 29, 2019
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