My high school English teacher would be impressed with the alliteration in today's title, but this is not English class. The breaks in breadth and bonds highlighted below are the first real warnings we have seen in our work since early June.
To be clear, these developments have not yet bled into the price trends of the major averages. They do, however, have our attention.
S&P 500 and NASDAQ 100
As mentioned above, the trends remain intact. Both widely followed indices closed higher during the week. As such, both remain above their rising 60-week moving averages.
Price trends are not the concern this week.
Source: Optuma
S&P 100 and NYSE New Lows
The first warning, and it is still early, is the recent expansion in new lows while the S&P 100 sits in a trading range just below record levels.
If the odds favored a breakout to the upside, we would not expect to see more stocks making new lows.
Source: Optuma
NYSE New Highs and Advance/Decline Line
Next, we can see that new highs on the NYSE have been contracting. At the same time, the NYSE Advance/Decline Line has begun to roll over, driven by a recent increase in decliners.
This is not what we want to see beneath the surface of a healthy advance.
Source: Optuma
Aggregate Bonds
While breadth begins to weaken, key trends in the bond market are also under pressure. Aggregate bonds have now spent the past seven weeks below a now-flat 40-week moving average.
Source: Optuma
Corporate Bonds
Digging deeper into the bond market, investment-grade corporates are also under pressure. The group is trading below a declining 27-week moving average.
This is a trend we watch very closely.
Source: Optuma
Final Thoughts
It is early, I want to be clear. This could all be nothing. Bullish price trends are still in place. However, as tactical risk managers, we are mindful of the shifts under the surface of the market and across asset classes.
