One of the biggest questions on investors’ minds right now is whether the correction that began in September is finally behind us.
As we’ve discussed repeatedly over the past few months, the U.S. stock market has been working through a stealth correction – not one marked by dramatic index declines, but by internal weakness beneath the surface.
That weakness started on September 11, when both the percentage of NYSE stocks in uptrends and the NYSE Advance-Decline Line rolled over.
Since then, the evidence has been steadily improving.
With Financials, Industrials, Small-Caps, and other key groups pushing to new highs, the weight of the evidence is increasingly suggesting that the correction is already in the rearview mirror.
Advancers and Decliners
The NYSE Advance-Decline Line is one of the most important measures of market breadth. It tracks the cumulative difference between advancing and declining stocks on the New York Stock Exchange.
Because it’s cumulative, each trading day adds the net number of advancing stocks minus declining stocks to the prior day’s total.
Over time, this gives us a clear picture of whether participation across the market is expanding or contracting.
For some perspective, last week the NYSE Advance-Decline Line reached the highest level in its history.
It’s difficult to argue that the market is in a correction when market breadth – by virtually any measure – is printing the strongest readings of all time.
November 20 Low
November 20 is shaping up to be an important reference point going forward, much like September 11 was over the past few months.
While September 11 marked a peak in internal breadth and the start of the stealth correction, November 20 appears to have marked the low.
On that day, both the NYSE Advance-Decline Line and the percentage of stocks in uptrends – those trading above their 200-day moving averages – bottomed simultaneously.
Since then, participation has improved dramatically.
Roughly two-thirds of NYSE stocks are in uptrends, a level that has historically been consistent with healthy bull markets.
The New York Stock Exchange
There are plenty of ways to measure market breadth, and plenty of universes you can use to do it.
In our work, we track a bunch of them – the S&P 500, Nasdaq 100, Dow 30, Russell 3000, MSCI global indexes, and more. Each one has its place.
But if you want the broadest, cleanest view of equity market participation on the planet, nothing compares to the New York Stock Exchange.
Keep in mind, a large portion of the NYSE’s biggest stocks aren’t even headquartered in the United States.
This is where many of the world’s most important companies trade their shares – names like Sony (SONY), Deutsche Bank (DB), Shell (SHEL), Bank of Montreal (BMO), GlaxoSmithKline (GSK), Nestlé (NSRGY), and countless others.
Unlike the S&P 500 or Nasdaq 100, which are heavily concentrated in U.S. Technology, the NYSE offers far more cyclical exposure and a much more balanced, global cross-section of equities.
There are many universes you can analyze to build a weight-of-the-evidence case. The NYSE is simply the best place to do it.
And right now, its cumulative Advance-Decline Line is at the highest level in history.
So you decide:
Is this weak breadth, or is it broadening upside participation?
I see the latter.
And we’re positioned accordingly.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs