Despite recent market weakness, the S&P 500 and broad NYSE stocks continue to show healthy depth of breadth. Note the recent new highs on both the A/D line (black) and the S&P 500 (red) on the chart above. The A/D line is also well above its 40 week (200 day) MA, illustrated by the blue line on the chart.
Meanwhile, the Nasdaq and small cap indices are showing weak market breadth. The Nasdaq New high/ New low chart below shows us that the number of new highs vs. lows are trending lower, and in fact have both moved below the “0” line, and breached their 200 day MA. According to Bloomberg, about 47% of Nasdaq stocks are down at least 20% since their peaks in the past 12 months. Further, about 40% of the Russell 2000 small capped index stocks are down 20% from their highs.
I’ve posted a chart of the Nasdaq with my favorite indicators below. Note that the trend remains bullish, and moneyflow remains positive (an important factor for longer termed investors). However, the Nasdaq (like the S&P 500) is overbought – note the momentum indicators rolling over. Add in the weak breadth over much of this year, and you can make a case for the NAZ to experience a reasonable correction in the nearterm. I’m targeting a maximum downside of 4200-4300, between the 50 day MA or trendline.