This page has been archived and commenting is disabled.

Bottom-Up Breadth 'Bearish-est' In 19 Years

Tyler Durden's picture




 

We recently noted that the average Russell 2000 stock is down over 22% and the majority of the broad equity market is well into correction territory as the rally is supported by fewer and fewer names (cough AAPL cough). However, as FBN's JC O'Hara notes, looking at the percent of stocks above their 200 day moving average in the S&P 500 vs the percent of stocks above their 200 day moving average for the Russell 2000, we find the spread is at its widest point in the history of our database. While we find breadth is not a proper market timing tool, a heightened reading often forewarned of troubles ahead. It was more common to alleviate a wide spread by the S&P pulling back to the Russell rather than the Russell playing catch up.

 

Via FBN's JC O'Hara,

We have been discussing the erosion of breadth specifically from the view point of where the average stock is in relation to its 52 week high. Currently, the average S&P 500 stock is -5.5% below its 52 week high compared to the average Russell 2000 stock which is -20% below its 52 week high, a very large discrepancy between the two indices. The S&P 500 is at a new all times high while the average Russell 2000 stock is in a stealth bear market. Another way to measure breadth is to look at the percent of stocks above a certain moving average. This measure does a good job of compiling the bottoms up breadth of an index.

Typically, the S&P and Russell track each other closely when it comes to this measure of breadth. Taking the study one step further we measure the spread of breadth between the two indices. Looking at the percent of stocks above their 200 day moving average in the S&P 500 vs the percent of stocks above their 200 day moving average for the Russell 2000, we find the spread is at its widest point in the history of our database.

Examining the last 19 years of data we find this spread on average is ~ 7.5. The current spread is nearly 4 times as wide, registering 29.7 at yesterdays close, coming off its highest reading of 38.9 on May 14th. The chart on the previous page attempts to illustrate how the S&P 500 reacted to extreme spreads between these two breadth indicators. While we find breadth is not a proper market timing tool, a heightened reading often forewarned of troubles ahead. It was more common to alleviate a wide spread by the S&P pulling back to the Russell rather than the Russell playing catch up.

Below we list the highest points of this spread above 20 and comment on the forward reaction of the market. While it is in the Russell’s power to catch up to the S&P 500, history suggests that is not the likely outcome. Whatever path these two indices decide to take over the next few months, investors should appreciate just how different the stocks in each group are behaving. Something is abnormal and uncharacteristic of conventional markets.

Breadth readings confirm that the S&P 500 and the Russell 2000 are two very different markets now.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 06/06/2014 - 15:46 | 4831044 PlusTic
PlusTic's picture

who cares...free money equals stocks up...

Fri, 06/06/2014 - 16:02 | 4831105 ACP
ACP's picture

I think the bots have a ZH algorithm:

1 bearish article = Add 5 S&P points

 

Fri, 06/06/2014 - 16:09 | 4831133 HUGE_Gamma
HUGE_Gamma's picture

1950 * 5 = 9750 bearish articles

sounds about right

 

Fri, 06/06/2014 - 15:49 | 4831060 alien-IQ
alien-IQ's picture

bla...there's nothing wrong with the R2K another 6 trillion dollar stimulus can't fix.

Fri, 06/06/2014 - 15:52 | 4831068 Itchy and Scratchy
Itchy and Scratchy's picture

Definately worrisome!

Fri, 06/06/2014 - 16:04 | 4831118 TheRideNeverEnds
TheRideNeverEnds's picture

Yet every day the bears are getting blown the fuck out and everyday we explode off the open to new lifetime high as more obamabux flood the market. 

Fri, 06/06/2014 - 16:56 | 4831134 Squid Viscous
Squid Viscous's picture

every day you post on ZH, after your "SPX will blow thru 1900 by march first" call is comical... you fucking clown, only missed by three months and took 90 pts in the face first... but now you're back!

Your bio says "Premium salesman, counter-party to exuberance, buyer of last resort.

My level of sarcasm is inversely proportionate to the money I made in the market today. "

...If that was meant to be funny, it's not...you are an annoying douchebag,

Fri, 06/06/2014 - 17:07 | 4831306 Squid Viscous
Squid Viscous's picture

hello? are you back to World of Warcraft again after your $300 profit today? lol...

Fri, 06/06/2014 - 16:05 | 4831122 Stoploss
Stoploss's picture

The Russell will be playing catch up.

Fri, 06/06/2014 - 16:08 | 4831123 alien-IQ
alien-IQ's picture

And yet a new all time high on the closing bell.

And the /ES is STILL climbing. Go fuckin figure....

and the VIX? Yeah, that got monkey-hammered into the close...naturally. Now well below 11 @ 10.78. Should hit single digits by next week and it should be sub penny by December.

 

 

Fri, 06/06/2014 - 16:07 | 4831126 NDXTrader
NDXTrader's picture

Pretty sure I can guess how this is going to resolve...the Russell will play catch up. Funny money has to go somewhere.

Fri, 06/06/2014 - 16:50 | 4831258 kchrisc
kchrisc's picture

A friend of mine says that more and more of his peers seem to be more and more preoccupied with "when" to get out. He says the markets have become a gigantic over stretched steel cable.--"When it snaps, it will be quite bloody."

Fri, 06/06/2014 - 23:30 | 4831909 elephant
elephant's picture

Another discrepancy is that between the S&P, which is up ~6% for the year, and the DJIA, up ~1%.  Maybe the S&P is the outlier.

Sat, 06/07/2014 - 08:00 | 4832188 AdvancingTime
AdvancingTime's picture

I feel a great ugliness lies ahead. I love the way it is always being kicked out a year or two and never going to happen tomorrow. It is as if we can't handle what is coming at us and need more time.

For a long time I have been trying to develop a scenario for a market "super crash" and a reasonable map that would arrive at such a situation. Below is an article looking at how it could happen sooner rather than later.

http://brucewilds.blogspot.com/2013/01/flash-crash-on-steroids.html

Do NOT follow this link or you will be banned from the site!