Equity Breadth Is Flashing A Negative Signal About Growth Prospects

Tyler Durden's picture

Submitted by Eric Bush via Gavekal Capital blog,

We all know that stocks are a leading indicator of economic growth and disappointingly recent breadth measures suggest that economic activity may slow over the next several months.

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In the charts below, we show the percentage of stocks trading above the 200-day moving average for various market aggregates, regions and sectors (with a 1-quarter lead) against the 3-month moving average of the ISM Manufacturing Index.

 

Equity breadth tends to directional lead changes in the PMI. So if equity breadth is increasing, the PMI tends to accelerate. Unfortunately, the fact that equity breadth has been declining over the past couple of months is pointing to a possible slowdown in the ISM Manufacturing PMI.

The percentage of developed market equities trading above the 200-day moving average has fallen from 77% on 9/22/16 to 50% as of yesterday.

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By region, breadth is best in DM Americas (59%) compared to 53% in DM Asia and just 36% in DM EMEA.

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The consumer sectors of the market (consumer discretionary, consumer staples, and health care) look particularly weak. Just 29% of DM consumer staple stocks are trading above the 200-day moving average. The DM consumer staples sector has only been this oversold twice during this recovery. 

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DM information technology and DM financials offer the most optimistic perspective, but even in these sectors breadth has declined over the past several months.

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SomethingSomethingDarkSide's picture

First time in 28 years..  most since 2008... highest in 11 months...

ALL OF IT MEANS MARKETS ARE BEING DIRECTLY MANIPULATED.

Math just doesn't work like this when reflecting Supply and Demand.

LawsofPhysics's picture

More technical analysis for us gamblers...

KnuckleDragger-X's picture

There is a difference between risk and gambling. Too bad nobody knows the difference anymore......

Bill of Rights's picture

Yes lets all pile in on AMZN at $736 dollars a share ....

KnuckleDragger-X's picture

I'm waiting on it to hit 1000, which will make it a super winner......

jamesmmu's picture

with Japan 10yrs went up 300% from negative to above zero. no one is scared? when will the rumor about OPEC deal ever stop?

 

this is madness. stocks are even trying to rally at this moment. 

USofAzzDownWeGo's picture

You just don't get it. These "warning signs" have been going on for the last 8 years, meanwhile, stocks continue to hit all time highs. 

pound the vix's picture

Correct.  I've fallen for the dooms day news too often.  I short and get my head ripped off.

jamesmmu's picture

I guess I was wrong, I was predicting a bigger loss in DOW today like 100pts. But it was only off less than 20pts now.

They are indeed over bullish. with 10yrs now shoot up to 2.35%. its a disaster for everyone.