Market Breadth Continues to Lead
Here is an update to one of our recent posts called Reasons to Stay Positive During This Correction. Among some of the reasons we stated, in addition to some of the positive indicators we discussed in our First Quarter Wrap-up, probably the most important was the fact that market breadth was making new highs while the S&P 500 was struggling. We focused on the fact that the market should eventually follow this breadth signal which tends to lead, and we are now starting to see some evidence of this. Below is an updated chart of the S&P 500 Index against the Cumulative Advance/Decline Line (A/D Line).
Source: Bespoke Investment Group, www.bespokepremium.com
The two tracked each other very closed until late January when we endured a 10% correction. The A/D Line fared much better on the downside, and actually hit a new high in early March when the S&P 500 failed to do so. The S&P 500 is still 3.5% below its January all-time high, however, the trend in the A/D Line has continued with smaller declines on each S&P 500 pull back and has actually hit ten new record highs since then. Even more impressive is the very short-term strength this week, where the A/D Line is about to high a new high for the fifth straight day. In our view, this continues to favor the upside and our portfolio positioning should continue to benefit.