Market’s Weekly Bill of Health

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With the market’s consolidation over the past week our longer term survey (200 day moving average evaluation) remains unchanged while our more sensitive survey shows more subsurface deterioration. The fact that our more sensitive MATA survey has yet to put a significant dent in the longer-term trend supports the notion that we are experiencing an intermediate-term correction within an ongoing bull market.

* Note: For further explanation of the market surveys and background on analysis, please click here.

200 Day Moving Average Evaluation

As shown in the table below, the net percentage of stocks in uptrends and downtrends remained unchanged from the prior week at 77% and 23% respectively. With roughly 3 out of every 4 stocks in the S&P 500 in uptrends and above their long-term moving average, the stock market’s long-term trend remains positive. In terms of sectors, the financials continue to take the top spot with 93% of their members in uptrends with energy and telecommunication services bringing up the rear with only 42% and 38% in uptrends respectively.

200 day moving average 0425

Classifying the four categories for the survey in terms of seasons helps to gauge the market’s maturity. This bull market remains dominated by the early bull market (AF, Spring) and late bull market (AR, Summer) categories, indicating the age of this bull market is still in its early stages. Given the percentage of stocks in the early topping out phase (Fall, BR) that occurs before stocks move into their own private bear markets remains the smallest group with only 1%, there is simply no evidence that the stock market is putting in a top and why we believe current market weakness is merely an intermediate-term correction.

market season 0425

Over the past few weeks with the market’s pullback we have seen the percentage of stocks in the AR category fall from 65% on March 30th to 45% as of today and the percentage of stocks in the AF category rise from 18% on March 30th to 32%. What is vitally important to understand is that the present bull market that began after the October 2011 lows is still young in maturity to where a large portion of the stocks in the S&P 500 have flat 200d MAs as they were just starting to turn up when the market began to correct.

200 day moving average

Moving Average Trend Analysis (MATA)

We saw a further worsening in the MATA survey for the S&P 500 in which the percentage of stocks in uptrends decreased from 58% to 53% with a corresponding increase for stocks in downtrends from 19% to 20% from last week’s reading. The percentage of stocks that are trendless increased from 23% to 27%.

mata table 0425

With 27% of the S&P 500 in the trendless category, any strength on the downside or upside could potentially increase the downtrend and uptrend categories in the weeks ahead. For evidence to support that the current intermediate-term correction is over, we will need to see the percentage of S&P 500 members in confirmed uptrends begin to expand again and exceed the 65%-70% healthy threshold.

mata spx 0425

52-Week Highs and Lows Data

The data for the S&P 500 for 52-week highs and lows continues to suggest a healthy bull market. Over the past month 25% of the S&P 500 (125 stocks) hit a 52-week high while only 4% (18 stocks) hit new 52-week lows indicating, once again, that the market is not in the process of putting in a major top. During such market tops you typically see nearly an equal percentage of stocks making new 52-week lows and highs as the market begins to deteriorate, which is clearly not seen in the data below.

Another point of interest is that two of the top three sectors in terms of participants making new 52-week highs are cyclicals, with consumer discretionary at 41% and technology at 31% (see chart). These sectors often peak ahead of the market given their cyclical nature and the fact that these are some of the strongest sectors suggests the market remains constructive. The energy sector remains a mess with new 52-week lows seven times greater than the percentage of new 52-week highs as falling coal and natural gas prices are hurting the sector.

spx high lows
Source: Bloomberg

Summary

Given the above, the clear message is a healthy market with broad-based participation not showing any indication of rolling over into a bear market. Rather, we believe current market action reflects an intermediate term correction within the context of a bull market that began off the October 2011 lows. One interesting dynamic that is likely to lead to sector rotation in the near future will be the breakdown or breakout of the USD from its consolidation this year. A breakout should benefit negative inflation-sensitive groups like consumer staples and consumer discretionary while a breakdown in the USD should benefit commodity producers and exporters.

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About Chris Puplava

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