Welcome to Extreme Investor Network, where we bring you the latest and most valuable insights into the world of investing. Today, we are discussing the current state of market breadth in the U.S. equity market and what that means for investors.
Recently, despite the S & P 500 reaching all-time highs, there has been a contraction in market breadth. This indicates that the recent rally in the major indices has been narrow, with more decliners than advancers on the NYSE. Cumulative breadth metrics, such as the NYSE cumulative advance-decline line, have been pulling back since mid-May, suggesting a short-term risk for the major indices.
Short-term momentum is currently to the downside for the advance-decline line, indicating that market breadth may continue to pull back in the near term. This contraction is also reflected in the ratio of the small-cap Russell 2000 Index to the S & P 500, which recently hit a new 52-week low.
While the major averages have been able to push higher, there are signs that market breadth is deteriorating in a negative divergence. When there is a negative divergence between price and breadth metrics, it is important to be sensitive to any ‘sell’ signals that may arise.
However, it is important to note that short-term breadth contractions are common during uptrends and can actually renew demand when markets appear extended. And while the current pullback may seem concerning, a breakout in the NYSE advance-decline line before this contraction suggests that breadth should eventually expand in support of the cyclical bull trend in the S & P 500.
In conclusion, while the market may be experiencing short-term challenges in terms of breadth, there is potential for a rebound in the near future. Stay tuned to Extreme Investor Network for more updates and insights on investing strategies to help you navigate the ever-changing market landscape.
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