This Market Doesn't Care What I Think

 | Aug 09, 2018 | 6:00 AM EDT
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On an average day I get quite a few questions on the market. Lately the questions have centered around breadth.

Some are concerned breadth is not strong. There are many ways to look at breadth. For example. One chart that has shown up in my inbox quite a bit recently is the percent of stocks over their 50 day moving average. It's not a statistic I use very much but I think it highlights much of what we're seeing. The current reading is just shy of 70%. A few weeks ago it was around 73% and in June it was 75%. In January it was over 80 and almost tagged 85%.

So yes those are lower highs since June. And certainly a far cry from the extreme in January.

When I discuss the breadth of the market I am typically talking about the cumulative advance/decline line. It is near the highs. This is not bearish.

When I complain about breadth (recently) it's because if you look at the chart of the cumulative advance decline line (upper chart) you can see that big push up in early June. You can see the big push up in early July. What you cannot see is a big push up in early August but rather a minor push up. The lower chart is the S&P.

So overall the breadth picture looks good but the recent rise you can see is lethargic.

The McClellan Summation Index is a derivative of the advance/decline line. Here too you can see the big push up that started in early May and continued in early June (upper chart) vs what we saw on the S&P (Lower chart). Even the early July move saw a decent push up in the Summation Index, even if it was to a lower high. But the August rally so far has not shown up in the Summation Index. It's been down -or this week it's at least flattened out. But here you can see the divergence clearly.

When it comes to stocks making new highs we see the June rally peaked with 190 stocks making new highs. July was not as good but it had 140 new highs. Thus far we've managed a best reading of 120 new highs during the August rally. Let me point out that in June the S&P was over 50 points lower than it is now.

My own Oscillators use breadth and here too you can see the lethargy. I can't remember a 50 point rally you could hardly see on the Oscillator chart and yet, here it is.

So overall breadth is chugging along. But in comparison to what it has been the momentum has been tailing off. In my experience the best way to clear that up is for the market to pullback since shakeouts tend to bring out bearishness and lead to oversold conditions.

I think the market should pull back. So far the market doesn't much care what I think.

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