In recent weeks, more stocks are participating in the market’s move to record or near-record highs. That improved leadership is just what is needed to signal a healthier outlook and put a stronger foundation beneath prices, according to a major Wall Street investment bank. “Market breadth breakouts support the bullish case,” Bank of America technical analyst Stephen Suttmeier said in a 29-page report Monday. On Tuesday, the S & P 500 touched a new intraday record, topping the one set in July. Suttmeier relied on the advance/decline line , a measure of the number of stocks rising in price on a given day versus the number of stocks that have fallen in price, for his analysis. .SPX YTD mountain SPX year to date Lately, the sheer number of stocks that are higher each day has far outweighed the number of those that are lower. In mid-morning trading Tuesday, for example, nearly 2,100 stocks were higher in price on the New York Stock Exchange versus fewer than 600 decliners. Advancers also beat decliners on the Nasdaq Stock Market by about 2,500 to 1,000, or a ratio of 2.5 to 1. “Strong advance-decline (A-D) lines show solid market breadth [and] suggest a ‘rotational’ versus ‘toppy’ trading pattern since July,” Suttmeier told clients. What’s more, a greater number of rising stocks in the third quarter shows that when there have been brief sell-offs in stocks, such as in early August and again in early September, “that weakness is ‘seasonal’ and not ‘structural.'” Suttmeier looked at the historical trends for ratios of advancing stocks versus declining issues for the 15 most actively traded stocks by volume in the U.S. each day — regardless of index and excluding any stock with a market value beneath $500 million — as well as in the S & P 500 and the Nasdaq-100 indexes. Not only does the market’s improving breadth bode well for current prices, but it can also herald strength in the future, according to Bank of America. “New highs for the U.S. top 15 most active, S & P 500 and Nasdaq-100 A-D lines provide a bullish leading indicator for new highs for the major U.S. equity indices,” Suttmeier said. As evidence, the analyst said the daily number of rising versus falling stocks on the New York Stock Exchange this summer “confirmed the late August high” in the NYSE Composite Index. Nor did the strength fail there. The NYSE Composite is on track to close at another all-time high on Tuesday, surpassing the prior record set Aug. 30, according to FactSet data.
More stocks are participating to the upside, signaling a healthier market
Sep 17, 2024
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