Macro Wrap – Serious Breakdown in Breadth

by Enis April 5, 2013 7:42 am • Commentary

The SPX index is only 15 points from all-time highs, and only down 0.4% this week, but the deterioration in the underlying breadth has been unmistakeable.  Here is the total number of new 52 week highs on U.S. Exchanges, Courtesy of Bloomberg:

Screen Shot 2013-04-05 at 7.34.54 AM


The reading hit 291 yesterday, the lowest since late February, and one of the lowest readings of the year.  Meanwhile, the SPX index is up more than 150 points in 2013.  Breadth has been weakening for more than a month now (as defensives and large caps hold the broader indices up), but the deterioration in the past week is especially notable for the depth of issues that have moved lower.

The stock indices can oftentimes be misleading as a judge of the health of this market.  Even though the SPX is up 3% in the past 2 months, the health of the stock market (and the number of advancing vs. declining issues) was actually better at the start of February than it is now at the start of April.

Overnight action was quite weak, adding to the number of markets breaking down worldwide.  The Hang Seng made a new low for the year, now down 4% in 2013, European indices are down 1.5% on average, and the Euro Stoxx 50 index is now down 2% on the year, and even North American markets like Canada and Mexico have had very bad weeks, and both are now down for the year.

U.S. exceptionalism in a globalized financial market is a dangerous theme upon which to invest.  But more importantly, the internal health of the U.S. stock market has been flashing warning signs that have only gotten brighter in the past few weeks.  I expect lower prices.  My trades are obviously aligned in that direction.