- NYSE New Highs – New Lows
- Russell 3000 Index Stocks
- S&P 500 Advanced-Decline Line
NYSE New Highs – New Lows
It’s no secret that US stock market breadth has narrowed in recent weeks. However, the nature of this weakness in breadth is more consistent with a corrective washout than the beginnings of a bear market. For starters, NYSE New Highs – New Lows rebounded last week and finds itself in neutral territory. Compared to historical price declines of a similar magnitude, this breadth measure is holding up quite well.
Russell 3000 Index Stocks
Another way to measure market breadth is the percentage of stocks trading above a key moving average. The chart below displays the percentage of Russell 3000 Index stocks trading above their 200-day average. The indicator remains in neutral territory ~50%, supporting the view of a corrective washout within an uptrend. Bulls want to see this indicator push back above 50%, as sustained periods above 50% are indicative of strong forward price returns.
S&P 500 Advanced-Decline Line
The advanced-decline line is a popular measure of market breadth. When comparing the S&P 500 Advanced-Decline Line to the S&P 500 Price Index, you’ll notice a divergence. Price formed new lows in March, but the advanced-decline line (breadth) did not. This divergence supports the likelihood of a near-term bottom in stock prices.
Taken together, these 3 measures of market breadth tell a coherent story. The deterioration, while real, has been notably shallower than what accompanied prior declines of comparable magnitude - and several metrics are already displaying signs of improvement. The weight of the evidence points toward a corrective washout rather than the opening chapter of a bear market.
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