Bad Breadth

The news is blue
It has its own way to get to you
What can I do?
I'll never remember my time with you
--Sniff 'N' the Tears

Despite new highs in major equity indexes, stock market breadth has been weakening. This means fewer and fewer names are propping up the averages.

When investors become more risk averse, they first rotate out of higher beta, racier names and into stocks deemed 'safer.' Money flows to mega caps thought to be market stalwarts and less susceptible to big declines. This means names like Google (GOOG), Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), et al have been attracting disproportionate funds at the expense of smaller issues. 

Because of their huge market caps, these stocks can move the indexes higher even though most issues aren't going up. The bulls still feel good, however, because the indexes are still increasing.

As sentiment continues to shift, however, investors decide that even the big names are vulnerable and begin to unload them. When that happens, there is nothing left to support higher prices.

The bears then slide into the driver's seat.

no positions