Market’s Weekly Bill of Health

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With the 4.5% pullback in the S&P 500 over the past week we have seen a bit of deterioration in the market’s internal structure on a short-term basis, however, both the level and composition of stocks remaining in long-term uptrends indicates the market is still healthy and does not suggest that we've reached a peak in this current bull market. Rather, what appears to be occurring is an intermediate correction within an ongoing bull market.

* 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 decreased from the prior week from 81% to 74% while the percentage of stocks in downtrends increased from 19% to 26%. While the market’s internal breadth weakened the fact remains that the present bull market is broad-based and well represented by the constituents within the S&P 500 as 74% of the S&P 500 members remain in an uptrend. 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 from 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 day moving average 

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 last week in which 2% of the market moved from late bull market (summer, AR) to early bear market status (fall, BR) over the prior week’s reading. It should be pointed out, however, that given the extremely small percentage of stocks in the early topping out phase (Fall, BR) that occurs before stocks move into their own private bear markets, there is simply no evidence that the overall stock market is putting in a top. If the market were topping, we would see the BR category increase significantly along with strong rotation into defensive sectors, neither of which are currently present.

market season

Breaking the sectors out into their respective industry groups, three of the top and bottom 5 industry groups remained from last week with the real estate and food beverage and tobacco groups being replaced by banks and capital goods in the top 5 category. The transportation group returned to the bottom 5 group this past week with 55.6% of its members in downtrends.

200 day table

Moving Average Trend Analysis (MATA)

We saw a slight worsening in the MATA survey for the S&P 500 in which the percentage of stocks in uptrends decreased from 71% to 63% with a corresponding increase for stocks in downtrends from 11% to 15% from last week’s reading. The percentage of stocks that are trendless increased from 18% to 22%. The financial sector continues to hold the top spot from last week with the energy sector holding on to the worst spot. 

mata

With the financial sector sporting the largest percentage of stocks in uptrends, it’s not surprising to see that 2 out of the top 5 industry groups are financials. Moving in to tie the top spot was the banking industry with 100% of its members in uptrends. 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 28% of the S&P 500 (141 stocks) hit a 52-week high while only 2% (12 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 48% of consumer discretionary stocks and 32% 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 sectors suggests the market remains constructive.

spx 52 week highs lows 

Summary

When reviewing multiple methods of analyzing the market's health, though the market has weakened a bit from its condition a few weeks ago, the clear message given is a healthy market with broad-based participation that is 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).

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