Breadth Checkup

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Breadth Checkup

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Right now there is a lot of noise about this being a dead cat bounce that is about to top.  It certainly may be, but to be fair, the same people have been saying that since a couple weeks off the lows and a ton of $SPY points lower.  One thing I like to look at is how the breadth picture is progressing off the lows so let’s take a quick check and see how the broad internals are holding up.

For those not familiar with my process.  We always start with the long term readings.  First we have the NHNL Differential

4-2-2016 4-31-47 PM TU NHNL

With this indicator you have 3 triggers, the actual NHNL Differential (black bars), the 10sma of the NHNL (red line) and the 30sma of NHNL (blue line).  each signal heightens the risk and when they are all triggered it is usually time to get out of the way.  We saw all of that starting last August, but the big divergence in late September saw a dead cat bounce, but failed to get the traction needed.  However, we got another new lows with divergence in early February.  One failure is fairly rare, but two would be very unusual.  Well, since then we have seen a strong move of the lows and just last week we have reset all 3 triggers putting this back on the buy side.  Next long term reading is the Advance Decline Line which I have posted a few times during this rally showing it have been leading price during much of this rally.

4-2-2016 4-32-44 PM TU AdvDec Line

The Advance Decline Line is not leading as well at this point, but still moving higher with price at the least.  The final long term reading I watch is the %>200sma (top window) in the next chart which is also moving well off the lows and has almost retaken the 50% line.  From an intermediate perspective the %>50sma crossed 80% in February and remained strong all March.

4-2-2016 4-35-21 PM TU MA Breadth

This level of movement in the long term and raw strength in the intermediate reading doesn’t hint at the dead cat resolution.  Our next intermediate reading and probably my favorite breadth indicator is the McClellan Summation Index which also showed a divergence right at the lows and hasn’t looked back.  Not even a flinch.

4-2-2016 4-33-38 PM TU McClellan

That type of move takes a very strong and broad move to create.  The shorter term Oscillator has also remained solid with only one dip below zero since the lows were put in.  The Breadth Thrust indicator is similar to the Oscillator, but bound from 0-1 to help with cross comparisons.  It also shows the breadth has held up well on the way up, but is working on multiple divergences which often precedes a pullback even if just short term.  One final chart we look at this the Percent Days chart which calmed down a lot since the lows.  In fact most of the readings have been to the upside.

4-2-2016 4-36-17 PM TU Percent Days

That level of calmness usually accompanies uptrends more often than it does during downtrends where the volatility is noticeably higher giving more readings here.

So reading through each of these charts we can see the progression off the lows has been more than just good, it has been excellent.  That doesn’t mean we make new highs right away, but it does raise the odd that the February low was a significant one.  As we enter the resistance zones in the major indexes we are likely to see pullbacks and consolidations, but as long as we continue to see breadth signals progress are chances of grinding back to the highs remain good.

Good Luck and I hope this helps!

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(All market data above are derived from Stockcharts.com, Esignal, and Reutersdatalink)
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About Author

Tommy

is a Chartered Market Technician (CMT) and Certified Financial Planner (CFPr) in Greensboro Georgia (Outside Atlanta). Founding partner of Barber Lackey Financial Group, LLC, a Registered Investment Advisor. However, this blog is not affiliated with BLFG and does not make recommendations to buy sell or hold any securities.

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