Over the last few months, we’ve presented a couple of simple quantitative studies meant to encapsulate the factors driving our Major Trend Index to the brink of bear territory. The chart and table might provide the best summary yet.
Market technicians continue to argue that a bull market peak is unlikely to form with the majority of U.S. stocks (and global ones, for that matter) still participating in the new highs of the blue chip indexes.
The Wall Street technical crowd remains mostly bullish, in large part because breadth accompanying this year’s new high has been decent. We follow the same figures and can’t dismiss their point. But pundits whose market views are heavily reliant upon the NYSE breadth figures should be aware of a strong upside bias that’s existed in the data since around 2001.
The renewed embrace of risk hasn’t extended to the sector level. After resisting decline in late September through mid-October, defensive sectors have matched the rebound in Cyclicals, almost point for point.
With Small Cap stocks falling to an 11-month RS low while the DJIA hits a new price high, many technicians point to this divergence as evidence the dangerous "distribution" period is underway. We're not so sure.