Market Internals Review 12-05-19

By Lance Roberts | December 5, 2019

A review of important measures of market breadth and participation.

Advance-Decline Line

, Market Internals Review 12-05-19
  • Currently, the cumulative advance-decline line confirms the bull market recent new highs.
  • With no sign of weakness at the moment, the indicator suggests the bullish trend will likely continue for now. (That doesn’t mean we won’t have short-term corrections.)
  • One note is the A-D line does not distinguish between a 20% decline and a full-blown mean reverting event.
  • Also, the MACD of the indicator is close to triggering a SELL SIGNAL. The 4-previous events have led to decent corrections, so this is worth paying attention to.
  • The A-D Line is also a very COINCIDENT indicator. It is pretty useless other than letting you know the overall participation in the market.
  • Reading: Bullish

Bullish Percent

, Market Internals Review 12-05-19
  • The S&P Bullish Percent index shows the percentage of stocks on bullish “buy” signals.
  • Despite the markets reaching all-time highs, the number of stocks on bullish “buy” signals remains in a negative trend.
  • This negative divergence tends to suggest latter stages of bull market advances as money flows into fewer stocks.
  • The current buy signal of the indicator suggests market support, but these signals have been fleeting in the past.
  • Reading: Neutral / Cautious

Percent Of Stocks Above Moving Averages

, Market Internals Review 12-05-19
  • The number of stocks in the S&P 500 which are currently trading above their respective 50, 150, and 200 day moving averages remains weak despite new highs.
  • Again, this is consistent with latter stage markets as money flows into few stocks as momentum overtakes the investing mentality.
  • The negative divergence is a warning, but is not always an immediate indicator. So this is worth watching but NOT making immediate portfolio changes.
  • Reading: Neutral / Cautious

McClellan Oscillator

, Market Internals Review 12-05-19
  • You are probably noticing a lot of similarities in these indicators.
  • As markets are hitting all-time highs, there are negative divergences across a multitude of indicators.
  • As noted, these negative trends occur leading into bear markets, and can persist for a very long time before the bear market sets in.
  • However, the important takeaway is that the bull market is still largely intact but there is some deterioration around the edges. This suggests that investors should remain invested for now, but maintain risk controls accordingly.
  • All good things do eventually come to an end.
  • Reading: Neutral

NYSE New Highs – New Lows

, Market Internals Review 12-05-19
  • Again, we see another negative divergence of the new high-low index not reaching new highs even as the overall market does.
  • If the high-low index can reverse and make new highs, then that will confirm the new highs of the market and be supportive of further gains.
  • Keep a watch on this index and look for confirmation before becoming overly aggressive on risk exposure.
  • Reading: Cautious

Overbought / Oversold Conditions

, Market Internals Review 12-05-19
  • On a technical basis the market are correcting an extremely overbought condition. This suggests the current correction may have a bit more to go over the next week or so.
  • The other measures also confirm the same, and when all of them are aligned, they have a decent record of predicting the markets next move.
  • The one important note is the market is trading below its previous broken bullish trend which makes the most recent lows critical support for this advance.
  • Given the short-term overbought condition of the market, use pull backs in the market to add exposure accordingly.
  • Reading: Bullish

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Lance Roberts is a Chief Portfolio Strategist/Economist for RIA Advisors. He is also the host of “The Lance Roberts Podcast” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report“. Follow Lance on Facebook, Twitter, Linked-In and YouTube
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