U.S. stocks have been hanging around record highs recently amid broader participation by individual investors, but now cracks are starting to form in the foundation of the bull market, according to technical analysts at SentimenTrader…
The biggest breakdowns in the positive trend for markets tend to come when fewer stocks are helping to drag benchmarks toward fresh records, the analysts say
“The biggest issues have come when underlying momentum wanes and we see cracks under the surface,” wrote Jason Goepfert, head of SentimentTrader and founder of independent investment research firm Sundial Capital Research, in a research note published Tuesday.
“That’s what’s happening now,” he wrote.
Notable says the SentimenTrader researcher is that fewer stocks are managing to end above their short-term moving averages even as the S&P 500 index SPX, -1.86% has managed to eke out record closing highs as it did on Monday along with the Nasdaq Composite Index COMP, -1.98%.
Goepfert noted that the S&P 500 closed at another record high on Monday, “and yet fewer than 45% of its stocks managed to close above their 10-day moving averages.”
“That’s a lot of short-term downtrends on a day the index closed at a high,” he said.
A breakdown in breadth may seem insignificant but SentimenTrader notes that the last time it occurred was in August last year near a period in September where markets momentarily turned lower.
“The reason why relatively few stocks are above their 10-day averages is that relatively few have been rising on days the S&P showed a gain,” the researcher wrote.
And it isn’t just the relatively short-term 10-day moving averages where breadth is starting to tighten.
On Monday, roughly 68% of S&P 500 stocks traded above their 50-day MA, representing the lowest such level since…
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