European Stocks
European stocks have also bounced, but the trend there is worse than what we have seen in the U.S. and momentum has not seen the sort of improvement (even on a short-term basis) evident on the preceding charts.
Sector Trends And Stock Market Breadth
One way of looking at better market breadth is from the perspective of sector-level trends. Here we are looking at short-term price, momentum and breadth trends for the 10 S&P sectors. Not only was the January low for this indicator higher than last summer’s low, but the February low has been higher than the January low. To get more conviction that market breadth trends are improving, however, we need to see actual upside improvement and leadership and not just a lack of downside confirmation.
The ongoing down-trend in our new highs to new lows indicator is a good example of this. We have seen over the past couple of years cases where this index has made a higher low (it just did so again in February). But missing in each case has been sustained strength to fuel an expansion in new highs (not just a contraction in new lows). Breaking above this down-trend would be strong evidence that stocks are poised for a meaningful leg higher. Until then, it might be hard to make the case that stock market breadth is anything more than just less bad.
S&P Industrials Sector
Helping support the improvement in the sector-level trend indicator has been better performance from some of last year’s laggards. Here we are looking at the Industrials sector, which this week moved back into the leadership group in our relative strength rankings. On an absolute basis (the top panel), price has held support, while on a relative basis (the second panel), it has made a higher low and higher high. Momentum is surging and breadth is starting to get in gear.
Thanks for reading this week’s stock market outlook. Have a great weekend.
Twitter: @WillieDelwiche
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
