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Why positive breadth won’t help the bull case

Summary:
Mid-week market update: There was a lot of skepticism in response to my last post (see How many pennies left in front of the steamroller?). Much of it was related to comments relating to positive market breadth. I am in debt to Urban Carmel who pointed out back in May that the Advance-Decline Line tends to move coincidentally with the major market indices. Here is an updated five-year chart of the 52-week highs-lows, and the NYSE Advance-Decline Line. The peaks in both of these indicators have either been coincidental, or lagged the stock market peak.  Other breadth indicators, on the other hand, have been less kind to the bull case. The chart below shows NYMO , or the NYSE McClellan Oscillator, % bullish, and % above the 200 dma. NYMO has been trending down even and exhibited a

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Mid-week market update: There was a lot of skepticism in response to my last post (see How many pennies left in front of the steamroller?). Much of it was related to comments relating to positive market breadth.

I am in debt to Urban Carmel who pointed out back in May that the Advance-Decline Line tends to move coincidentally with the major market indices. Here is an updated five-year chart of the 52-week highs-lows, and the NYSE Advance-Decline Line. The peaks in both of these indicators have either been coincidental, or lagged the stock market peak.
 

Why positive breadth won’t help the bull case

Other breadth indicators, on the other hand, have been less kind to the bull case. The chart below shows NYMO , or the NYSE McClellan Oscillator, % bullish, and % above the 200 dma. NYMO has been trending down even and exhibited a series of lower highs even as stock prices recovered. Both % bullish and % above 200 dma failed to confirm the recent test of the all-time high, as they failed to achieve new highs in the last month.
 

Why positive breadth won’t help the bull case

The market shrugged off the Manafort and Cohen news and closed roughly flat today, but the index flashed a bearish graveyard doji candle yesterday as it unsuccessfully tested its all-time highs while exhibiting a negative RSI-5 divergence.
 

Why positive breadth won’t help the bull case

In addition, the latest breadth readings from Index Indicators show that the market is retreating after reaching an overbought reading on a 3-5 day time horizon.
 

Why positive breadth won’t help the bull case

…and on a 1-2 week time horizon.
 

Why positive breadth won’t help the bull case

Regardless of whether you agree with me on my bearish intermediate term outlook, these conditions argue for a short-term pullback.

My inner trader remains short the market.
 

Disclosure: Long SPXU
 

About Cam Hui
Cam Hui
Cam Hui has been professionally involved in the financial markets since 1985 in a variety of roles, both as an equity portfolio manager and as a sell-side analyst. He graduated with a degree in Computer Science from the University of British Columbia in 1980 and obtained his CFA Charter in 1989. He is left & right brained modeler of quantitative investment systems. Blogs at Humble Student of the Markets.

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