An interesting graph from one of the people on twitter I follow @hertcapital below. While the S&P 500 is basing a stone's throw away from yearly highs, the breadth of participation is not near levels seen early this year, or during other intermediate pushes up to highs during early 2010 and then during the QE2 rally of latter 2010 through early 2011. The top chart is the % of S&P 500 stocks over the 50 day moving average (overlaid with the S&P 500), and the bottom chart is the % of S&P 500 stocks over the 150 day moving average (also overlaid with the S&P 500).
I find the bottom one to be particularly illuminating because in a knee jerk move up by the market many stocks can quickly jump over their 50 day moving average, but getting over the 150 day takes a lot more strength. During the bulk of the earlier major rallies we saw 80%+ of stocks over their 150 day moving average…. and at minimum at least 70%. Currently that figure is hovering just over 60%.
[click photo 2x to enlarge]
This shows us thus far it's been a relatively narrow rally, and "top heavy" if you will with focus on the larger S&P 500 stocks that move the index more – recent examples are Apple and Google. Other names that are near or above April highs from a quick glance are Exxon, General Electric, Chevron, AT&T, Wells Fargo, and Johnson & Johnson. So that is 7 of the top 12 components of the S&P 500 near or above April 2012 highs. While there are obviously 500 stocks in the S&P 500, the largest 25 make up almost 20% of the composition.
The takeaway is we don't have the same breadth here as the multi month rallies seen over the past few years. Now it could just be because we are in the early stage of a multi month move (remember 2 weeks ago this market was flip flopping around like a fish out of water), but at this moment the S&P 500 index itself has rallied on a smaller subset (but more impactful group of companies) than in early 2012. This lack of breadth is also obvious in the Russell 2000 which is nowhere near April's highs – and remember *it* was lagging the S&P 500 substantially earlier this year as well.
As for the general market, the S&P 500 tried to break out of its narrow 7 day range yesterday but was rejected in the afternoon. There is some mild pressure in premarket but really it feels like an empty market on auto control as volume is nowhere to be found. Semis and commodities which held the market up last week have been pressured thus far this week as money has rotated into healthcare and Apple/Google. The digestion continues but the fact so many gaps created by multiple gap up mornings 6-8 sessions ago remain, is something to be aware of. Strangely, bonds sold off with the market yesterday – these two markets have generally traded inverse with each other, not in line with each other. Same situation in premarket.
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog