Bad breadth

The Russell 2000 continues to trip and stumble. Over the past six months the small-cap benchmark has fallen 5.4% while the S&P 500 is 6.9% higher – a 12.3% difference. Yesterday the Russell 2000 formed a “death cross” where its 50-day moving average moved below the 200-day moving average. I’ve heard a few explanations for the Russell 2000’s weakness, including a suggestion that investors in these smaller, more vulnerable companies are being proactive and positioning themselves defensively ahead of a Fed move to hike interest rates. That may be the case, but I prefer to see the major indices moving in harmony – it’s a sign of a healthy market. There’s another fly in the bull market ointment: deteriorating internal market breadth. As you can see on the chart above, the number of NYSE stocks trading at their lowest price over the past year is spiking while the widely watched S&P 500 notches one all-time high after another.  I’m long SPY, QQQ and IYH, but keeping one eye affixed on the exit door.

♦ Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. ♦