Market’s Weekly Bill of Health

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Despite recent weakness in the market over the past two days, the overall bullish trend shows no sign of deterioration based on the collective behavior of the major market sectors highlighted below. Most importantly, given the current broad-based participation, there is no evidence the stock market is putting in a major top.

* Note: For further explanation of the market surveys, please click here.

200 Day Moving Average Evaluation

As shown in the table below, the net percentage of stocks that are in uptrends and downtrends for the S&P 500 remained unchanged from last week at 81% and 19%, respectively. This indicates the present bull market is broad-based and well represented by the constituents within the S&P 500. The two weakest sectors that make up the largest share of the stocks in bearish downtrends remain the energy and telecommunication sectors, with energy being weighed down due to weak natural gas prices and the 8-member telecommunication sector being weighed down by smaller-sized companies while Verizon (VZ) and AT&T (T) are in bullish uptrends.

200 dma eval 20120404

Classifying the four categories for the survey in terms of seasons helps to gauge the market’s maturity. We saw a further maturing of the market in the last week in which 1% of the market moved from early bear market (Fall, BR) to late bear market status (Winter, BF) and 1% of the market moved from early bull market (Spring, AF) to late bull market (Summer, AR) over the prior week’s reading. 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 2%, there is simply no evidence that the stock market is putting in a top.

season market

Breaking the sectors out into their respective industry groups, four of the top and bottom 5 industry groups remained from last week with the consumer durables and apparel group being replaced by household and personal products in the top 5 category. The transportation group showed some improvement and left the bottom 5 group to be replaced by food staples and retailing.

200 day table highlight

Moving Average Trend Analysis (MATA)

We saw a slight improvement in the MATA survey for the S&P 500 in which the percentage of stocks in uptrends increased to 71% from 70% with a corresponding increase for stocks in downtrends from 10% to 11% from last week’s reading while the percentage of stocks that are trendless decreased from 20% to 18%. The financial sector continues to hold the top spot from last week with the utility sector holding on to the worst spot.

moving average

With the financial sector sporting the largest percentage of stocks in uptrends, it’s not surprising to see that 3 out of the top 5 industry groups are financials. Moving into the top spot and replacing consumer durables and apparel was household and personal products. Energy and utilities remain some of the weakest sectors and their groups continue to remain in the bottom five groups with some of the highest percentage of members in downtrends.

mata table

52-Week Highs and Lows Data

The data for the S&P 500 for 52-week highs and lows continues to suggest a very healthy bull market. Over the past month 29% of the S&P 500 (145 stocks) hit a 52-week high while only 2% (10 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 49% of consumer discretionary stocks hitting new highs (and ZERO new lows by-the-way) and 34% of the technology sector. These sectors often peak ahead of the market given their cyclical nature and the fact that these are some of the strongest suggests the market remains constructive.

52 week high lows

Summary

When reviewing multiple methods of analyzing the market's health, the clear message given is a healthy market with broad-based participation and not showing any indication of rolling over into a bear market. In terms of seasons, we are clearly in the middle of summer and we will know we are entering the fall (market peak) when individual leaves start falling off the trees (more stocks move into bearish trends). As of now, according to various breadth measures the sun is shining and the skies are clear.

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