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Thrust Confirms Breakout With an Improvement in Participation

Thu, Jun 1, 2017 - 4:13pm

In recent weeks and months, stock market participation—breadth—has been weak even while the S&P 500 pushed to new all-time highs. Normally, this would be a cause for concern but, after drilling down into the data, we noted that most of the deterioration was concentrated in defensive areas of the market and not cyclical, pro-growth areas (see Does the Stock Market Have a Case of Bad Breadth?).

Today, there was a decent improvement in the breadth outlook as the US stock market pushed higher and the S&P 500 closed at another new high of 2430. The percentage of S&P 500 stocks trading above their 50-day moving average has improved with today’s jump bringing the total up to 67.8% (circled in blue below). A reading above 70% shows strength in breadth.

stock market breadth
Source: Stockcharts.com

Looking at the numbers, 439 of 500 stocks in the S&P 500 were up today, representing a very nice thrust and participation in today’s gains. Ignoring the market cap of the heaviest of heavies in the S&P 500 like the Fabulous Five (Alphabet, Amazon, Apple, Facebook, and Microsoft) I’ve been focusing on the consolidation in the equal weighted index since early March and it appears today was the day the broad S&P 500 equal weighted index decided to breakout to new highs. It’s possible the next leg up in the market has begun.

stock market breakout
Source: Stockcharts.com

Along with the S&P 500, the Dow Jones Industrials Average also closed at a new (closing) high today at 21,144.

dow jones industrials
Source: Stockcharts.com

The Transports have yet to make new highs but today’s close broke the intermediate downtrend in place since March. It’s looking like the H&S top for the Transports is now looking more like a H&S continuation pattern.

transports continuation
Source: Stockcharts.com

The recent improvement in breadth measures adds weight to the bullish breakout to new all-time highs in both the S&P 500 and Dow Jones Industrial Average and it has been missing since the Nasdaq started trekking to new highs. If the Russell 2000 can follow suit along with the Dow Transports, then there won’t be much evidence left to be concerned about the recent consolidation.

While the 10-year Treasury yield continues to be stubborn near 2.2%, the next catalyst there could be the June 14th message from the Federal Open Market Committee on monetary policy complete with a press conference afterwards and the dot plot estimates for interest rates the rest of the year. While the economic headlines today were nice with a healthy ADP private payrolls report and an ISM report that was steady, it would have been even better to see a more direct change in rates reflecting a more bullish outlook on the economy. Watch tomorrow to see if Treasuries reflect what the Employment Situation says from the BLS and if stocks can add to recent gains.

On Saturday, we'll provide a weekly wrap-up on the above and more. Tune in by going to the Financial Sense Newshour page or by subscribing on iTunes here.

About the Author

Chief Executive Officer, Technical Analyst
ryan [dot] puplava [at] financialsense [dot] com ()
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