Although the headlines don't necessarily reflect it, the U.S.
stock market is having a very tough time continuing to make new
all-time highs as all the major benchmarks remain flat to negative
for the first three months of 2014.
The first chart below shows the year to date performance of the
Dow, Nasdaq, S&P 500, Russell 2000, and Europe ETFs with the
Dow leading the downside.
What is going on and why is 2014 different than 2013?
A superficial glance at the indices themselves is not enough to
tell us what is really going on in the markets.
That is why in our Technical Forecast we dive deeper into the
market's internals to give investors an edge in what's really
driving the markets and why it matters.
For instance the chart below was published on 2/23 when the
market was making yet another new all time high with the
commentary, "Obviously the rally of the past few months is not like
any of the previous rallies since the 2009 market bottom. All
of those rallies had quick participation of over 85% of companies
with prices above their 200 day moving averages. This time
around, the % of NYSE stocks above their 200 day moving averages
has not been above 75% since May 2013 and is moving sideways
instead of up."
Through today, that chart has not changed much. Stocks are
respecting the triangle resistance and turning back down as the
trend of fewer and fewer stocks participating in the rallies
Less than 75% of stocks are above their 200 day moving averages,
much different than the previous rallies where participation
interview on about market sentiment, VIX and our 66% gold
Leaders Become Laggards
Breadth charts, like the one above, are important because they
show that markets continue to be driven higher by fewer and fewer
stocks, which is a typical occurrence at major market tops.
Even popular leadership stocks such as the BioTech Sector
(NYSEARCA:BBH), Google (NASDAQGS:GOOG), Tesla (NASDAQGS:TSLA), and
Netflix (NASDAQGS:NFLX) have also started to decline. And when
leaders start to become laggards, it is a sign the market may be
Since their recent tops one month ago, Tesla has fallen over
25%, Netflix has fallen over 16%, Google over 10%, and the Biotech
sector (NYSEARCA:BIS) over 10%. These are very big moves for
such a quick timeframe and in an environment where the overall
markets are still sitting near their all time highs.
Former leaders (NYSEARCA:IBB) continue to become laggards
(NYSEARCA:DOD) and the chart above displaying the % of stocks above
their 200 day moving averages shows this deterioration has been in
the making since May 2013.
Eventually, there will not be enough stocks moving higher to
support the overall indices, taking the markets lower as over 25%
of companies are now in bear trends, with prices trading below
their 200 day moving averages.
Profit Strategy Newsletter
uses technical, fundamental, and sentiment analysis to stay ahead
of the major trends in all the equity classes. Since May
2013, market breadth has been declining as fewer and fewer stocks
participate in the rally. Alert investors should pay attention to
these market internals and prepare their investment portfolios
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