S&P 500: Bad Breadth
Risk Off Criteria Review & Trade Idea Updates
A Case of Bad Breadth
For the third consecutive week, the S&P 500 and Nasdaq have closed at fresh all-time highs, advancing +0.61% and +0.21%, respectively. In last week’s note, I highlighted that an argument could be made for worsening breadth week over week. This trend continues—throughout all of last week, more stocks made new lows than new highs, indicating that breadth is undeniably deteriorating.
In an interview with Jack Schwager, Stanley Druckenmiller discussed the timing of his shift from bullish to bearish during the 1987 market crash. He cited a combination of many factors, and specifically in terms of technical analysis, he noted:
“Finally, my technical analysis showed that breadth wasn’t there—that is, the market’s strength was primarily concentrated in high capitalization stocks, with the broad spectrum of issues lagging well behind.”
This quote has a familiar resemblance to today’s market.
This week’s note provides an update on the three risk-off criteria, a review of the "risk-on" small-cap equities, and updates across the three category trades: US Small Caps, Outside US Equities, and The Gold Trade.
Risk-Off Criteria
From a 'risk-off' perspective, the S&P 500 ended last week in the same position as the previous two weeks, with only one risk-off criteria flashing red—insufficient to trigger any market warning.