{"id":20389,"date":"2022-11-30T07:30:40","date_gmt":"2022-11-30T12:30:40","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=20389"},"modified":"2022-11-30T07:30:40","modified_gmt":"2022-11-30T12:30:40","slug":"is-an-illness-spreading-in-the-stock-market","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/is-an-illness-spreading-in-the-stock-market\/","title":{"rendered":"Is an Illness Spreading in the Stock Market?"},"content":{"rendered":"

Something must be wrong…<\/p>\n

There may be an illness circulating.<\/p>\n

That was my thought when several family members didn’t show up to the Thanksgiving party last week.<\/p>\n

And sure enough, it was true. That also seems to be the case for stocks right now.<\/p>\n

You see, when stocks are missing from the S&P 500’s rally, it’s a sign something is wrong… that an illness is spreading throughout the stock market.<\/p>\n

I’m referring to participation in a stock market’s trend known as breadth<\/em> – a way to measure how many stocks are joining an underlying move in the market.<\/p>\n

Since finding a low in October, the stock market has rallied nearly 11%.<\/p>\n

But breadth deterioration is a warning this party won’t last…<\/p>\n

Is the Crowd Keeping Up?<\/h2>\n

Breadth measures how well the average stock among the crowd is keeping up with the major indexes.<\/p>\n

A healthy market advance is marked by broad participation, while you should be concerned when fewer stocks are supporting a rally.<\/p>\n

For example, take the dwindling breadth leading up to this year’s bear market…<\/p>\n

At the start of 2021, more than 80% of stocks across the major exchanges were trading in uptrends. But at the end of the year, that number shrunk to just 42% even as the S&P 500 was making new highs.<\/p>\n

That wasn’t a good sign back then… ultimately giving way to this bear market.<\/p>\n

Breadth also flagged two other waves of selling this year.<\/p>\n

Here’s one metric I’m watching, and why warning signs are flashing again…<\/p>\n\n\n\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Falling Participation<\/h2>\n

This bear market has seen three rallies of 11% or more in 2022. But the last two rallies eventually failed and saw the S&P 500 collapse to new lows.<\/p>\n

And right before each turn lower, declining participation provided advance warning<\/em>… and that’s what we’re seeing yet again.<\/p>\n

One way I measure breadth is with the McClellan Oscillator.<\/p>\n

This figure takes the difference between advancing and declining stocks on the New York Stock Exchange (NYSE), and then averages the difference over a trailing period so we can see how breadth is evolving over time.<\/p>\n

Now take a look at the chart below of the S&P 500 (top panel) and the McClellan Oscillator (bottom panel)…<\/p>\n

\"Chart\"<\/div>\n

The red circles show where participation is falling as the Oscillator makes lower highs.<\/p>\n

The first two circles on the left marked the end of bear market rallies, and the S&P went on to new lows.<\/p>\n

That’s my concern with the red circle on the right, which shows breadth deteriorating even as the S&P 500 is moving higher.<\/p>\n

It’s not just breadth indicators that are suggesting a cautious approach…<\/p>\n

My colleague Jeff Clark showed you yesterday<\/a> how several other sell signals are piling up as we head into the new year.<\/p>\n

While the financial talking heads seem eager for a rally, Jeff warns that traders should be cautious in the weeks ahead.<\/p>\n

So be careful hanging around the stock market’s party for too long as signs of illness emerge, lest your portfolio catches a bug.<\/p>\n

Best regards,<\/p>\n

Clint Brewer
Analyst, Market Minute<\/em><\/p>\n

<\/p>\n

Reader Mailbag<\/strong><\/h2>\n

How do you think the market will close out the year?<\/p>\n

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

It\u2019s not well under the stock market\u2019s hood\u2026<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[82],"newsletter-type":[],"ticker":[],"class_list":["post-20389","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-clint-brewer"],"acf":[],"ai_tts_audio_outdated":false,"ai_tts_legacy_post":false,"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/20389","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=20389"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/20389\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=20389"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=20389"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=20389"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=20389"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=20389"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=20389"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=20389"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}