The S&P 500 index reached an all-time high this week; however, market internals continue to flash warning signs. A handful of large-cap semiconductor stocks appear to be propping up the market, but they may be the last chips to fall. Here are some of the factors that concern me:
- The number of stocks within the S&P 500 index above their 50-day and 200-day moving averages continues to decline.
- The number of stocks within the S&P 500 and Nasdaq 100 that are bullish, as defined by the Bullish Percent Index, has been declining since the beginning of the year.
- The Summation Index (a breadth indicator) has been declining since the beginning of the year, forming a bearish divergence relative to the S&P 500 index.
- The number of stocks within the S&P 500 index that are hitting new 52-week highs has been decreasing for the past couple of weeks, as the S&P 500 index reached an all-time high this week.
- There is relative weakness in a plethora of sectors and industry groups, including small caps, computer software, consumer discretionary, transportation, materials, energy, financials, and industrials.
- The equal-weighted S&P 500 has not confirmed the new all-time high hit by the cap-weighted S&P 500 index.
Client Account Update
I have progressively reduced the total equity allocation in our client accounts.
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