DEEP DIVE: Bad & Good Breadth

Joe and I have recently observed that the S&P 500 has a breadth problem. This is a widely recognized problem by most technicians who track the stock market. The good news is that a more fundamental measure of earnings breadth is performing well. Consider the following:

(1) If we are in a bull market that started on October 12, 2022 as we still believe, our thesis isn’t getting much support from the ratio of the equal-weighted to the market-cap-weighted S&P 500 indexes (Fig. 1). This measure of breadth was rebounding nicely since the October 12 low, but it then dropped sharply after Silicon Valley Bank hit the fan in early March.

During the start of bull markets, this ratio tends to rise, indicating that more and more stocks are participating in the bull run. The same breadth issue can be seen in the New York Stock Exchange advance/decline line (Fig. 2).

(2) Joe and I also monitor the percent of S&P 500 companies trading above their 200-day moving averages (Fig. 3). It did rebound from 15.6% on October 14 to a recent high of 72.7% on February 3. But it’s been hovering around 50.0% in recent days. We would have liked to see a more V-shaped rebound in this breadth measure.

Also disappointing is the percent of S&P 500 companies with positive y/y price changes (Fig. 4). It has remained below 50.0% since the start of the bull market and was 45.2% on May 12.