As record highs reached by major benchmarks, breadth has weakened.
Benchmark records are not confirmed by most markets, sectors and stocks.
Thrust signal from 30-day new high indicator would require substantial breadth improvement.
While there’s been no shortage of headlines about the latest record highs on the S&P 500 and NASDAQ, the highs have been less significant as a sign of market strength than as an influence on investor sentiment. The Big Mo Tape Composite, Global Big Mo and other broad market barometers reflect trend conditions that are no better than neutral, as summarized by the Fab Five Tape Component.
Yet excessive optimism has been indicated by the Daily Trading Sentiment Composite and other sentiment indicators that have been keeping the Fab Five Sentiment Component on a bearish reading.
Our New High Proximity report indicates that among the 47 ACWI component markets, the U.S. has been joined by just four others in reaching record highs this month, five others at four-year highs, and eight others at one-year highs.
Indicating a divergence from the All Country World Index, in which the ACWI carries 63% of the weight, the chart below shows downtrends in the percentage of markets at one-year highs (middle clip) and its spread with the percentage of markets at one-year lows (bottom clip).
With net new highs still positive, the indicator is still casting a favorable vote in our Rally Watch report. But it is only one of four indicators that are still doing so in the 16-indicator report. Like the net new highs indicator and other gauges of market breadth, the report’s aggregate reading has been diverging from the records reached by the S&P 500, NASDAQ and ACWI.
For many markets, a return to new highs would require substantial rallying. Fewer than half of the markets are within 5% of one-year highs (seen below), 26% are within 5% of four-year highs and 23% are within 5% of record highs, down from a high of 36% last month.
The New High Proximity report also indicates that among the 11 ACWI sectors, only three have reached one-year highs this month — Communication Services, Health Care and Information Technology. And the latter two are the only ones that have reached four-year highs and record highs.
Diverging new highs can also be seen at the stock level. Among close to 1500 stocks in the MSCI World Index, only 17% are within 5% of record highs.
Even a 30-day new high has been a challenge to reach, as indicated by the percentage of stocks in our U.S. multi-cap universe at 30-day new highs. Another divergence from the benchmark highs, the percentage has gotten only as high as 11% this month and has since receded, as shown below.
One of the short-term components of the Rally Watch, the indicator will generate a breadth thrust signal by rising above 44.5%, which would be a sign that the market uptrend has regained its vigor. But like other indicators showing divergent new highs, there’s currently little to suggest that the breadth of new highs will be confirming the benchmark highs any time soon.
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