Yesterday, April 2nd, was a bad day from a bull’s perspective. Despite an 89 point gain on the Dow Jones Industrial Average and an 8 point gain in the S&P 500 (both to record closing highs), the broad market fared poorly. Decliners led advancers 1540 to 1433 on the NYSE and by about a 5-4 ratio on NASDAQ. Breadth (the percentage of stocks participating in a market move) is one of the best indicators of the trend and of a change in trend. Situations where the “generals” prosper while the “privates” start to get beat up historically bode poorly for the market as a whole.
As the saying goes, “one day does not a trend change make.” The current breakdown in breadth would have to persist and be confirmed by volume for me to conclude the bull is over. The market has looked like it might break more than once during this 40% rally from early October, 2011. A strong employment report Friday could once again put a bid under the broader market. I am just cautioning that if one were looking for signs that stocks were making a top, failing breadth – which we have not seen at any time during the rally – is one of the classics.
–Mark Carlton, CFA
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