Be Terrified: Stock Market Breadth Is Weakening

 | Dec 06, 2017 | 11:19 AM EST
  • Comment
  • Print Print
  • Print

Most of the indexes closed lower yesterday -- except for the Nasdaq 100 Index (below). Internals were negative on the NYSE and Nasdaq as volumes declined from the prior session -- but no support levels or trend lines were violated on the charts, despite some warning signs appearing and breadth weakening over the past few sessions. The data is mostly neutral -- with a couple of caution signals.

On the charts, the Nasdaq Composite Index (below) closed on support and its short-term uptrend line. Any further weakness there would cast a longer shadow for that index. Potential warning signals were registered on the S&P 500, S&P Midcap 400 Index and Value Line Arithmetic Index (see below), as all flashed "bearish stochastic crossover" signals. Those signals were also seen on the NDX and COMPQX last week -- and just prior to their recent pullbacks.

What may be of greater import is the recent weakening in overall market breadth, as the All Exchange cumulative advance/decline line has turned neutral from positive and the Nasdaq A/D has now turned negative and below its 50-day moving average. This shows a recent deterioration in overall market strength. Only the NYSE cumulative A/D remains positive. So the near-term chart trends are neutral for the NDX and Russell 2000 Index (below), as the rest remain positive.

The data is mostly neutral with a few yellow flags. All of the McClellan OB/OS Oscillators are neutral (All Exchange:-15.69/+12.23; NYSE:-6.6/+24.73; Nasdaq:-26.59/+1.82). The Total and Equity Put/Call Ratios are also neutral at 0.83 and 0.57, respectively, as is the Open Insider Buy/Sell Ratio, at 28.5. However, warnings are coming from the OEX Put/Call Ratio -- at a very bearish 3.56, as the pros have loaded up on puts along with a bearish 18.21 ISEE Sentiment Index.

In conclusion, weakening breadth suggests a bit more caution may be warranted for the very near term, while valuation remains near historic highs. Yet the current index trends should be respected until proven otherwise.

Forward 12-month earnings estimates for the SPX from Bloomberg of $140.60 leave a 5.46% forward earnings yield on an 18.7x forward multiple.


Columnist Conversations

Tilray's staggering 41% rise this morning leaves the company with an insane valuation and leaves Canopy Growth...
I badly want to be the person that calls the top in red-hot cannabis stocks, but fear looking like a short-ter...
Now the government will get to really dive into the inner workings of Tesla (TSLA) . Who knows what else they...
In GS I see key price support at the 224.49-226.42 area.  I also have timing for a possible low.  I ...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.