Sunday, April 15, 2012

Weekly Market Commentary: Sharp Drop in Breadth

It was a bad week for Nasdaq breadth as the Percentage of Stocks above the 50-day MA gapped sharply down to 34% while the parent index lost just over 2%; this has left a significant bearish divergence between breadth and the Nasdaq.

The Nasdaq Bullish Percents is still in the early stages of mapping a swing high.  Although a peak in this indicator doesn't necessarily correlate to a peak in the Nasdaq itself; see the Bullish Percent swing highs in 2009.

As the Summation Index dropped out of its rising channel.

Meanwhile the Nasdaq rebounded off broadening wedge resistance on higher volume distribution, but there is plenty of room to support. However, given breadth weakness some more downside is likely in the weeks ahead.

Small Caps took their losses but it finished the week on neckline support. Rising channel support will soon converge with the neckline.

Finally, the S&P closed the week on 1,370, but the losses weren't as great as for the Nasdaq and Russell 2000. However, the index experienced distribution on the week.

Given the sharp drop in breadth it's likely it will translate into further weakness for the indices.  However, this action favors a pullback rather than a full breakdown. It will take a break of the rising channels to suggest something more terminal is at work, but markets will likely attempt a rally before they get there.


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