Over the past couple of months, I’ve highlighted some encouraging signs that had accompanied price strength in the market. Unfortunately, most of those signs of strength haven’t persisted as the market is moving close to all time highs.
First lets look at the Bullish Percent Index (BPSPX). It finally got above the 2015 highs in March and April of this year, but the subsequent consolidation in the market did serious damage to this indicator. It is still below 60% which is a big drag on the market (and adds the risk of a big decline). Basically, a lot of point and figure charts turned bearish during the last consolidation and haven’t righted themselves.
Next is small caps stocks compared to big caps. They have lagged during the last rally. I like to see them lead as a sign of investors taking risk in their portfolios.
Money flowed into mega cap stocks faster than big cap stocks during the last rally too. Another poor sign for a sustained rally. It looks more like a flight to safety than committed long positions.
The Nasdaq 100 (NDX) is still lagging the S&P 500 Index (SPX). As I’ve stated before, I’d like to see this ratio get above the 20 week moving average on a break to new highs. Without leadership from NDX I don’t think a rally can be sustained.
My core market health indicators are still showing a mixed picture with too much weakness to signal a big rally is ahead of us.
Leadership is missing from the last rally. It needs to show up quick or I doubt a move to new highs will be sustained.