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Tracking The Market's Strength

Above we see a helpful chart from the excellent Index Indicators site.  Note that we're hovering near all time highs in SPX, but the number of stocks trading above their 20-day moving averages has been tailing off and now stands a bit above 57%  This waning of strength is also reflected in the intermediate-term new high/new low data, as tracked at Barchart.com.  Yesterday, we saw 578 stocks across all exchanges register fresh monthly highs and 605 make new monthly lows.  Even on a three-month basis we had 330 new highs and 316 new lows.  Not exactly resounding strength for an index at its highs.  The average 14-day RSI for the 500 SPX stocks is currently about 54, down from the 60s earlier this month.

Meanwhile, a number of sectors of the market are trading below their highs, including financial shares (XLF); energy stocks (XLE); industrials (XLI); raw materials shares (XLB); healthcare (XLV); midcap stocks (MDY); and small caps (SLY).  Internationally, we're seeing notable failures to approach new highs among emerging market stocks (EEM) and European stocks (VGK).  Indeed, stocks outside the U.S. as a whole (EFA) have been underperforming.

Volume in SPY has been extraordinarily low, telling us that we neither have bearish catalysts to bring institutions to divest their holdings nor bullish catalysts to justify richer valuations.  For July, we've averaged about 49 million shares traded daily.  Compare that to an average volume of almost 84 million shares this past May.  It may well be the case that it will take a distinct catalyst to bring market participants off the sidelines and generate the next significant market leg.

It's been helpful to stay open minded and flexible on a day-to-day trading basis, but I am completely on the sidelines in my investment account.  I need to see evidence of breadth strength to justify a longer-term bullish position and so far that evidence is missing.

Further Reading:

What We Can Learn From Unique Breadth Data

TraderFeed Home Page and Index

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