By just looking at the indices $SPX, $COMPQ, $RUT, $DJ30, you really can't say anything negative about them, they are all trading near all time highs. However, the breadth deterioration underneath the surface is real, not only have many stocks stop going up but we are now seeing an uptick in stocks going down. The charts below tell you the whole story.
The question is; is this information actionable right now? The answer is no, at least for me its no. Breadth divergences have been going on for a while, it was the most popular topic for financial bloggers in 2013. And every time the market looked and felt like it was going to crack it bounced, and it bounced hard. Rotation has been the key, they take one group to the woodshed and then normally the most recent weakest group bounces.
I have no interest in shorting individual common stocks even though the breadth says that it's wise to do so. My fear of waking up one morning to a buyout is greater than my greed to make a few dollars on a short. As far as shorting the indices, the price action is not confirming what is happening with stocks. I need to see a pattern of lower highs and lower lows to take a short strictly on the breadth numbers. For now this something that's in the back of mind and either stocks will catch to the indices or the indices will catch to the stocks.
Wednesday, May 27, 2015
The Breadth Deterioration Is Real
"Frank began his career on Wall Street nearly two decades ago. He worked alongside some of the most respected traders on the street. He quickly realized his true talents were in his ability to interpret market technicals as well as behavior. He was a full-service broker until 2011 when he decided that his no-nonsense approach and expertise was better suited as an independent rather than under the reins of the brokerage business. Since his transition, Frank founded Zor Capital LLC and had successfully managed the portfolios of high net worth individuals. Outside of the cliche cookie cutter approach. His achievements and advice have been featured by CNBC, FOX Business, Yahoo Finance, Benzinga, Wall Street Journal, and CNN Money. Frank is widely regarded as an influential trader in the industry."