A frequent point of discussion this year has been breadth, or more specifically, the massive impact of mega caps on the market-cap-weighted S&P 500’s year-to-date performance. We often use the 10-day advance-decline (A/D) line to measure how breadth is evolving in the near term; highlighting these readings for the S&P 500 and its eleven sectors daily in the Sector Snapshot. This indicator essentially shows the average net percentage of daily advancers versus decliners in an index over a two-week period.

In the chart below, we show the S&P 500’s 10-day A/D line (expressed as standard deviations to clarify overbought/oversold levels) over the past year. The past week has seen a monumental shift in breadth. Just one week ago, the 10-day A/D line was deeply overbought sitting 1.72 standard deviations above the historical average, but as of yesterday’s close, it has fallen all the way into oversold territory; a 2.9 standard deviation drop in only four days.
Looking back to the start of our data in 1990, that is one of the largest four-day declines on record. In fact, the last time the line fell by such a degree or more was in September 2022 when there was a record decline.
While two-standard deviation declines have been uncommon, even fewer have resulted in the 10-day A/D line going from overbought to oversold. In the table below, we highlight those nine prior instances that have occurred with at least 3 months having passed since the last occurrence. The current period holds one of the higher starting readings in the 10-day A/D line. In fact, only November 2011 saw a higher reading.As for S&P 500 performance going forward, returns have generally been mixed. One week after big ‘breadth bombs’ the index has actually risen better than three-quarters of the time, however, one month out has averaged a decline with positive returns less than half the time. Three months out to one year on have all averaged positive returns, but those are all weaker than the norm.More By This Author:Nasdaq Corrections
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