Wednesday, August 19, 2015

The Market Dilemma That Is Driving Everyone Nuts

I have been in the finance industry for 18 years, I spent 13 years as a Series 7 broker, I have many friends on the street that I talk to regularly.  I also have a presence on Wall Street 2.0 which is twitter/stocktwits.  I believe that the people I follow on the social media front are smarter than my broker friends when it comes to the market (that does not mean they are better at investing/trading/making money). However, my broker friends are actually involved in the business, moving money around while some from the Wall Street 2.0 are not.  As of right now they're pretty much at opposite ends. The brokers are saying "all my stocks are getting crushed", while the bloggers are pointing at how the SP500 cumulative advance decline line is near highs and there is absolutely no reason to complain. According to Urban Carmel 75% of the total U.S. market cap are represented by the SP500, so it does a good job representing the market.  On the other hand the Russell 3000 consists of 98% of the investable U.S. equity market.

The bloggers are pointing out the chart below.  Advance-Decline Percent is a breadth indicator that measures the percentage of Net Advances.  AD Percent = (Advances Less Declines) / Total Issues.  As you can see it is trading near highs chugging right along with SP500.

The brokers that I'm talking to are probably not involved with too many SP500 names. Their universe is normally the smaller names. Regardless, they might be on to something. Currently we have 1,306 stocks down 13% or more in the last 34 days versus 706 that are up 13% or more in the last 34 days. We also have 879 stocks down 25% or more in the last 65 days compared to 352 that are up 25% or more. As you can see from the charts below, the amount of stocks trending lower has been rising in the last couple of months while the ones trending higher have been on a decline. This may be the reason why brokers are complaining that their stocks are getting crushed.

Russell 2000 versus stocks up or down 13% or more in the last 34 days.
Russell 2000 versus stocks up or down 25% or more in the last 65 days.

If you take the above breadth analysis and only include SP500 stocks that will give you 61 SP500 names down 13% or more in the last 34 days versus 45 that are up 13% or more in the last 45 days. In addition you have 32 SP500 names down 25% or more in the last 65 days versus 8 that are up 25% or more in the last 65 days.

You can debate this 9 ways to Sunday. I would like for you, the reader to leave a comment telling us if your actual portfolio feels more like the SP500 and the advance decline line or more like the Russell 2000 and the number of stocks down or 13% or more in the last 34 days.  You can simply reply blogger or broker and we will get the point.   @Zortrades



  1. It's been a total chopfest for months. While yes, the SPX A/D line is mirroring the index, the A/D on the Nasdaq is a far different story.

  2. neither blogger or broker. swing / momo trader trading own money. sitting in cash. no energy in market at moment. many feel they have to do something but maybe best thing to do is sit on your hands and wait for better set ups and environment...

  3. I've been in cash for 6 or more weeks. Just can't get a handle on this chop, so am sitting it out. When the new quarter kicks off, I think we'll see the true direction. No opinion.