Tuesday, May 19, 2015

Another Look At Breadth

With many markets currently either hitting new highs or testing their upper range we wanted to take a quick look at how breadth is stacking up.  As we've touched on repeatedly over the last month, market breadth has lagged price but a few bullish indicators have actually started to sprout.

First, the Advance/Decline line of the S&P 500 looks very healthy in accompanying price to new high ground.  As the S&P has broken out to the upside of its 3 month sideways range, the A/D line has also made fractional new highs.  This is a healthy sign for a continuation of the bull market.

Even though 52 week highs has lagged (bottom in blue) we are starting to see some broader participation in our short-term indicators.  The % of stocks above their 10-day moving average has started to creep higher and is close to levels seen at prior highs. 

Again we'd ideally want to see broad participation across all of our breadth indicators but after months of chop and the markets now testing the upside of the range, we're at least seeing a few silver linings.  Markets rarely give us exactly what we want so it's a constant test of weighing both sides of the argument.

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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