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Today I want to address the bearish argument that “breadth is falling off a cliff, therefore stocks must fall.”
Is it true that we’ve seen breadth deterioration within the S&P 500 index? Absolutely. But there’s nuance that I want to address because not all breadth is created equal.
What I’m showing you below is the percentage of stocks within the S&P 500 that are hitting new 52-week lows.
I’m highlighting the recent expansion because it’s “not nothin.”
But what’s more interesting to me are the sectors themselves that are seeing deteriorating breadth.
If we see the stocks within the “offensive sectors” breaking down, that may be cause for concern. If it’s the defensive stocks breaking down, there’s less signal.
Let me show you where we stand today.
Below you’re looking at the percentage of stocks within the Utilities and Staples sectors that are hitting new 52-week lows.
These are traditionally defensive stocks within defensive sectors breaking down, causing the surge in 52-week lows.
A bear would want to see these stocks performing well. But we’re not seeing that.
Let’s switch it up and look at what stocks within the offensive sectors are doing.
I’m not seeing many new lows in Tech and Financials. In fact, I’m seeing almost none.
I want to remind everyone that the equal-weight Nasdaq 100 is hovering around new highs. H/t JC Parets for flagging this last week.
Duality Research illustrated it perfectly.
“21 of the 28 net new lows (within the S&P 500) came from Utilities, Staples, and Real Estate.”
If we saw a surge in the more offensive sectors, that would be cause for concern. We’re just not seeing it yet.
WAYT Tonight
I’ll be joining Josh on an all new edition of What Are Your Thoughts? tonight at 5PM EST.
Insanely grateful for the opportunity.
Time to bring the heat!
Thank you for reading!
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