My biggest concern with this market over the past three months has been the lack of breadth in this market.
And today it is hitting new lows.
While the S&P 500 and Dow Jones Industrial Average continues to hit new highs over the past week, and the Nasdaq and Russell Index not too far behind, only 43% of stocks are actually trading above their 40-day moving average. That is astoundingly low.
In fact, I am used to seeing the number in the 75-80% range when the bulls are hitting new highs, so we are basically looking at a reading of nearly half that.
What does it all mean? It means that fewer and fewer stocks are actually pushing the market up to new all-time highs.
Eventually this comes to a halt, unless stocks as a whole can rebound and begin participating in the rally once again.
So be careful here – take profits where you can and protect the existing profits by raising those stops because this bearish divergence will eventually be faced with a reckoning – one way or another.
When doing the technical analysis on the indicator, you’ll see that there is a series of lower lows, and now a violation of key support underneath. Not good!
