Market Breadth
Market breadth has been signaling internal market weakness since the first half of last year.
Market breadth has been deteriorating for months. In our January 25, 2022 Update I highlighted how important segments of the market (Industrials, Transportation, Small Cap, and International Indexes) were falling or consolidating while major market indexes were rising last year.
And in our January 3, 2022 Update we explained how large-capitalization stocks were advancing; however, small, mid, and micro-capitalization indexes were not participating in the advance.
Nothing has changed over the past month in that stock market breadth is still poor.
S&P 500 Index – Market Proxy
Major market indexes broke down at the beginning of this year and are in downtrends.
The S&P 500 is sitting above its 200-day moving average and below the 50-day average.
Last week’s advance retraced 61.8% of the decline from last year’s market peak. This is a key Fibonacci level and if the market is as weak as market breadth is signaling, I would not expect price to advance above this level. If it does, it would be bullish for the broader stock market, especially if it is accompanied by positive market breadth.
In addition, the 50-day moving average, which is right above this level could act as resistance if the index can garner enough buying interest to make a run higher.
Client Account Update
Because of elevated market risk, client accounts are allocated extremely defensively.
The stock portion of our portfolio is minimally invested in stronger segments of the market such as commodities, banks, utilities, broker-dealers, country-specific international index funds, and gold. These positions are hedged with index short funds.
The bond portion of our portfolios are minimally invested given poor bond technicals.
As always, we monitor market conditions daily and look to protect our clients from losses during times of major stock and bond market stress.
If you have any questions, please feel free to send me an email.
Craig Thompson, ChFC
Email: [email protected]
Phone: 619-709-0066
Asset Solutions Advisory Services, Inc. is a Fee-Only Registered Investment Advisor specializing in helping the needs of retirees, those nearing retirement, and other investors with similar investment goals.
We are an “active” money manager that looks to generate steady long-term returns, while protecting clients from large losses during major market corrections.
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