There are two kinds of investors: the passive index huggers and the active managers.
The former only cares about what the index, usually the S&P 500, is doing. If the index is making new highs, that’s good. Most people should choose this camp if I am being completely honest. A bet on the S&P 500 is a bet on the long-term success of the United States economy. It is usually “money good.”
The latter group understands that hugging the index usually works out. Still, they also understand their work can be rewarded over time simply by sidestepping the large parts of the index’s drawdown.
You know where we fall, and we see signs that something is not quite right with the rally.
S&P 500
The index of choice notched another all-time weekly closing high and remained well above the rising 60-week moving average. Support at 5,200 is key in the near term. A break below opens the door to the moving average currently near 4,900.
Sector Returns
Over the past month, only four of the eleven sectors of the S&P 500 are positive. Of the four, only two (Information Technology and Communication Services) outperform the broader index.
NYSE New Highs & Lows
Since the middle of May, the 5-day moving average of stocks making new highs on the NYSE has been declining, while the 5-day moving average of stocks making new lows has been rising. We would expect the opposite to be true if the bullish trend were healthy.
NYSE Percentage Above 50-Day Moving Average
For most of 2024, there has been a steady deterioration in the percentage of NYSE stocks trading above their respective 50-day moving averages. While extremely low readings for this metric are often contrarian bullish, we are not near those levels now.
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