Market Breadth takes a measure of the strength of an index’s price trend by looking at how individual members of the index are performing.
On May 16 both the S&P 500 and the Nasdaq made new highs. The percentage of individual stocks in the S&P 500 that made a new 52-week high was 12 percent, down from 27 percent on March 1. This suggests fewer stocks were participating in the rally over time. When breadth statistics and price action stop moving in the same direction it’s a warning signal that a correction may come.
The number of stocks in the S&P 500 Index that are trading above their 200-day moving average is showing a similar divergence.
Source: Bloomberg pro terminal
Trader Nikolay Georgiev
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