The S&P 500 this week hit a new all-time high but underlying measures of strength and sustainability are not all that encouraging for the bulls. Excited financial media pundits might want to reconsider their high levels of enthusiasm once they’ve examined these charts and their possible meaning.
The Stock Market and Its Negative Divergences.
The daily price chart for the S&P 500 looks like this:
It’s a fine looking up trend and it’s hard to complain but the direction of price is different than the direction of the relative strength indicator (RSI, below the price chart). The former goes up and the latter heads down. That’s a negative divergence. Taken by itself, it’s probably not enough to draw an absolute “it’s a top!” investment conclusion…but, wait, there’s more.
Here’s the daily chart for the S&P 500 bullish percent index:
This shows the percent of S&P stocks now in bullish point-and-figure patterns and Friday’s 78% is lower than the previous week’s 80+%, a negative divergence from this week’s new S&P price high. The measure indicates that fewer stocks in the index are participating in the move.
The daily chart for the S&P 500 New Highs/New Lows Percent is here:
This measure shows that the percent of new highs versus new lows actually declined from earlier readings on Friday’s new index high. The new highs/new lows percent is lower than it was in September. This indicates a lack of underlying strength in the S&P 500’s move upward.
The Nasdaq 100 failed to make a new high when the S&P 500 did. Here’s how it looks:
The big cap tech and social media stocks had been the leading index up until this summer and now, in October, it’s unable to make a new high when the S&P 500 does. Fed rate cuts apparently aren’t quite as exciting to the stocks that make up this sector. That the Nasdaq 100 is no longer in charge is worth evaluating.
Here’s the daily chart for the percent of bullish point-and-figure stocks in the Nasdaq 100:
This measure hit a recent high in August and now is unable to match the strength previously shown. It’s odd to see just how much higher this was in January of this year (where the chart begins). The Nasdaq 100’s most actively traded stocks, like Nvidia and Tesla, just aren’t as hot as earlier in 2024.
One more…
The New York Stock Exchange Advance/Decline Issues daily chart:
With this week’s new index high, fewer advancing issues and more declining issues prevented this measure from exceeding the earlier-in-September mark and the mid-August peak. Why can’t it establish a higher high along with the S&P 500? That question is also worth considering.
No artificial intelligence was used in the writing of this piece.
More chart analysis and commentary at johnnavin.substack.com.