Worth Pays… However For How Lengthy? | RRG Charts

Whereas the S&P 500 continues to maneuver greater, the variety of shares collaborating to the upside continues to say no. In different phrases, market breadth is deteriorating. Nonetheless, it has been doing that for fairly a while already, and, as everyone knows, we should always not swim towards the tide.

However, I’ve develop into more and more within the continued narrowing of market breadth over the previous few weeks.

Declining New 52-week Highs

One of many first charts in my chart listing is a chart of the S&P 500 with the brand new 52-week highs.

The decline in new 52-week highs could be very seen. In and of itself, it isn’t a significant promote sign, as this metric can decline whereas the market strikes greater for fairly a while; for instance, within the second half of 2021. The height in new 52-week highs occurred in Might-June after which declined into December whereas the S&P powered greater.

Nonetheless, what we will be taught from this decline is that the bottom and the muse for the rally are getting narrower. Fewer shares are collaborating to the upside.

Declining % of Shares above 200-, 50-, & 20-Day Exponential Transferring Common

Different metrics to measure market breadth and participation are indicators that observe the proportion of shares above a transferring common. At StockCharts.com, we observe these percentages for the foremost indices and sectors for 20-, 50-, and 200-day exponential transferring averages.

The chart above reveals these metrics for the S&P 500 index. I plotted the person indicators after which overlaid a 10-week transferring common on every to gauge the development. All three have began to return down from elevated ranges and are actually transferring decrease, whereas the S&P remains to be transferring greater.

As mentioned, this in itself is just not extraordinarily alarming, however one thing to pay attention to. Bear in mind, we try to piece collectively the items of the puzzle the market is giving us every day.

Plotting on a Relative Rotation Graph

Nonetheless, as we’ve got these indicators for the person sectors, we will additionally plot them on a Relative Rotation Graph.

The RRGs under present the relative rotation for these indicators (200-day, 50-day, and 20-day) towards the respective indicator for the S&P 500.

On the 200-day model, we discover fairly a couple of tails nonetheless on the right-hand aspect of the graph, however most have rolled over and/or turned to a detrimental RRG-Heading. Solely !GT200XLK remains to be at a robust heading and transferring additional into the main quadrant.

On the 50-day model, the tails have moved additional left, indicating weakening throughout the board (decrease RS-Ratio readings). !GT50XLK is inside, main and transferring additional into it.

Lastly, on the 20-day model, issues are just a little extra pronounced, with a couple of tails actually accelerating into the lagging quadrant. Some delicate enchancment is discovered for XLF and XLI throughout all three MA durations.

So, the principle takeaway is that almost all of sectors are seeing their proportion of shares above one of many transferring averages declining quicker than the proportion of shares above these MAs for the S&P 500. Expertise goes towards this development, and Financials and Industrials have a mildly improved studying.

Utilizing $ONE because the Benchmark

Working these similar universes on Relative Rotation Graphs however swapping the $SPX benchmark to $ONE offers us absolutely the developments comparability for these metrics. The principle commentary on these RRGs is that just about all tails are clustered on the left-hand, detrimental aspect of the graph. This means that the majority of those indicators are trending decrease.

And SPY continues to maneuver greater…

And all that whereas, the S&P 500 continues placing in new highs.

Wanting on the S&P chart together with RSI and MACD, we see that RSI and MACD are nonetheless under their earlier peaks, maintaining the opportunity of a detrimental divergence alive.

Everyone knows that “worth pays!!” however, within the present atmosphere, I am unable to assist asking myself, “However for a way lengthy?”

StayAlert, –Julius