Chart of the Day 2 – Warning Breadth

by Enis June 4, 2013 2:43 pm • Commentary

One of the most concerning aspects of the price action over the last 3 weeks has been the weak underlying breadth of the market.  Even with today’s ugly action so far, the market is only down 1% in the past 3 weeks.  In that period though, breadth has been much weaker than a 1% decline in the indices would suggest.  Here is the 15 day chart of the number of advancing securities on the NYSE:

15 day intraday chart of the NYSE Advancers index, Courtesy of Bloomberg
15 day intraday chart of the NYSE Advancers index, Courtesy of Bloomberg

I’ve drawn the red line at 1500, which is around the midpoint, as there are about 3,000 securities on the NYSE.  In the past 3 weeks, we have only had 1 close above 2,000, and 3 closes near 500, a very weak breadth reading.  That’s one sign of distribution.  More concerning though is that in the past 15 trading days, we have had 7 up days and 8 down days in the SPX, but the breadth reading shows a clear downward bias over that period, relative to the midpoint.

Granted, part of the weak breadth has been due to the weakness in bonds, which hurts some bond-related securities that get included in this reading.  But the large majority of securities on the NYSE are stocks, and the broad message remains the same – most stocks have been going down even while the indices have held up in the past few weeks.

In short, the weak breadth is an area of concern, and today was another example.  When the market was up this morning, breadth was barely above 1500.  Watch for some strength in breadth before getting too enthusiastic about buying the dip.