The Rally is Rotting from Within

Bank of America Merrill Lynch’s ace technician Stephen Suttmeier is out with his big monthly chart book this weekend and he leads off with a pair worthy of our attention.

The number of S&P 500 52-week lows that have piled up here at the midpoint of 2015 is not a good thing. The market has been able to shrug off lots of internal breadth problems over the last few years, but this could be a big enough problem to do permanent damage to the advance. The major average has now been stalling for over half a year while the constituent stocks have been dropping to new year-lows one by one.

The tally now stands at 42 and counting. It’s not easy to make a meaningful new high in the index when 10% of the companies included are dropping precipitously.

Suttmeier notes later on that a lot of the weakness is concentrated in energy, materials and industrials – which is understandable given the commodities / emerging markets picture this days. On the side of the bulls is the fact that financials are building in strength relative to the overall S&P 500.

The 2011 comparison is an interesting one…

Chart 1: Expansion in 52-week lows is big breadth concern for the S&P 500 The expansion in the number of S&P 500 stocks hitting new 52-week lows as the S&P 500 has traded within its range from late February is a warning from market breadth and suggests that 2120-2135 resistance should hold. Key support for the S&P 500 remains 2040, but diminishing breadth is a risk for this support.

Screen Shot 2015-07-26 at 7.33.28 PM

Chart 2: This increase in new 52-week lows is similar to summer 2011 The mid 2015 build-up of new 52-week lows within the S&P 500 is similar to the mid-2011 increase in new 52-week lows. The 2011 build-up in new 52-week lows preceded a breakdown from a top in the S&P 500 and a peak to trough decline of 19.4% on a daily closing basis (21.6% on an intra-day basis) into October 2011. Difference is that over 40 stocks in the S&P 500 have hit new 52-week lows now vs. under 20 prior to the August 2011 S&P 500 breakdown, meaning that the setup might be more bearish now than in 2011.

Screen Shot 2015-07-26 at 7.33.40 PM

Source:

Monthly Chart Portfolio of Global Markets: S&P 500 cyclical bull market at risk
Bank of America Merrill Lynch – July 24th 2015

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. replique montre commented on Jan 19

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2015/07/26/the-rally-is-rotting-from-within/ […]

  2. Epson Perfection 2480 Photo manuals commented on Jan 22

    … [Trackback]

    […] Here you will find 3671 more Info to that Topic: thereformedbroker.com/2015/07/26/the-rally-is-rotting-from-within/ […]