Breadth Model Update: %Above 200-day SMA Sags for SPX and OEX and AD% Reflects Broad Downside Participation

This is a midweek update to address Monday’s price action and its effect on the breadth indicators and models. At this stage, there was only one new signal: %Above 200-day for $MID broke below 45%. Nine of the ten breadth models remain bullish, but we saw more deterioration in the breadth indicators on Monday. Selling pressure was the strongest in small-caps and mid-caps over the last five weeks (since August 15th). However, it was the Nasdaq 100 that led the way lower over the last two weeks.

The PDF above contains all breadth charts.

At this stage, I am still treating current weakness as a correction within a bigger uptrend and I expect this correction to extend further. SPY and QQQ are above their rising 200-day SMAs, but MDY and IJR broke below these moving averages. After a massive advance from March to September, a 33% retracement would carry SPY back to the 312 area, which is another 4-5% lower. The rising 40-week SMA and rising 200-day SMA are in the 310 area. The danger, of course, is that further weakness becomes enough to turn the breadth models bearish and the correction evolves into a bigger trend reversal. I will just take it one signal at a time. This is considered a correction until the long-term evidence turns bearish.  

S&P 500: 53.7% of stocks are above their 200-day SMAs. Put another way, 46.3% are below and in long-term downtrends. The chart below shows the five indicators that make up the long-term breadth model. %Above 200-day did not exceed 70% in August-September and did not come close to the levels seen from September 2019 to February 2020. Also notice that the 10-day EMA of AD% started to wane in July-August and spent most of its time in negative territory the last two weeks.

Nasdaq 100: 10-day EMA dipped below -20% for five of the last ten days. This shows broad participation on the downside. Advance-Decline Percent is based on net advances (advances less declines) and weak readings show broad participation to the downside. Just 30% of stocks in the Nasdaq 100 are above their 50-day SMAs and %Above 20-day SMA is close to triggering bearish with a move below 10%.

S&P 100: 44% of stocks are below their 200-day SMAs. %Above 20-day SMA sank to 11% and the 10-day EMA of Advance-Decline Percent dipped to 23.6%, the lowest levels since late March.

S&P MidCap 400: %Above 200-day SMA triggered bearish with a move below 45% on 21-Sept. MDY also closed below its falling 200-day SMA.

S&P SmallCap 600: Long-term breadth model remains net bearish (since late February) and IJR closed below its falling 200-day SMA for the second time this month. 64.4% of small-caps are below their 200-day SMAs (36.6% above). The chart below shows the 10-day EMA of AD% spending most of its time in the red over the last five weeks (since mid August).

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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