Breadth

I wanted to show you this last night, but it was after midnight so I decided to wait until today. These are breadth indicators and they are useful in determining whether a trend is healthy (has good breadth) or not.

 The indicator is in green, the comparison symbol which is the SPX is in red unless otherwise specified. This is the % of stocks that are 1 standard deviation above their 200 day moving average. Good market breadth should see this number rise accordingly with the market. However as you can see, while the SPX is near the 2011 highs, the % of stocks indicator is at 44%, whereas it was last seen with good breadth at 71% in 2010, even though the SPX is 116 points higher now, the indicator is nearly 40% lower. Meaning about 40% less stocks are 1 standard deviation above their 200 day moving average, even though the market itself is higher.


 Along the same lines, this is just an indicator that represents the % of stocks 2 standard deviation above their 200 day moving average. From the same period mentioned above, the indicator is 50% lower. It stands to reason that a strong rally should see more stocks participating in it, not 50% less.

 This is % of stocks 2 standard deviations above their 40 day moving average, compared with the October highs, the indicator has failed to make a new high with price and has in fact fallen to 27% from around 48% in October. Think about that, this seemingly strong rally only has 27% of all stocks trading 2 standard deviations above their 40 day average.

 This is % of stocks just trading above their 40 day average, from the October highs, the SPX has advanced , yet the % of stocks has remained the same, rather then advance with the SPX.

 The MCO has pointed out positive divergences at October lows and mid November lows, but in now lower then the October price highs and recently in the last week or so, has turned down in a negative divergence, both long term and short.

 This is the NASDAQ Composite's Advance / Decline line vs the NASDAQ Composite in red, the A/D line is lower now then it was at the September 2010 price lows even though the index is at new recovery highs. This means far, far fewer stocks are participating in this rally, so how do they get the average higher? Stocks in the averages are not equally weighted, buying the heaviest weighted stocks such as AAPL can cause the index to rally. Before the last weighting adjustment about 6 months ago, AAPL was weighted around 20% of the NASDAQ 100, this is the same as the bottom 50 NASDAQ stocks combined. Therefore, if we had those bottom 50 stocks and AAPL and called it the NASDAQ 51, all of those bottom 50 stocks could decline 2% on average and if AAPL was up 4% on the day, the NASDAQ 51 would close up +2% on the day, despite the fact that 50 of 51 stocks lost 2%.

 Several weeks ago I noticed the Rate of change in the SKEW Index was increasing, even before the SKEW Index made a move, I mentioned it on a Sunday night and the next week the SKEW moved to within 1 point of it's all time highs since introduced.

 Once again, the rate of change is moving up, to new highs in fact as the SKEW Index moves up. The SKEW runs historically (according to CBOE data, between 100 and 140. Where as the VIX tries to measure the probability of a likely outcome, the SKEW tries to measure the probability of an unlikely outcome such as a black swan even or market crash. At 100 the SKEW tells us there is virtually no chance of a market crash. It's average reading is 115, when it advances above that, the chances of a black swan event rise. It's interesting to note that after posting close to a all time (since introduction ) high, it is back on the move again, this time with even a stronger rate of change. In the past, high readings (according to the CBOE) have preceded market crashes, sometimes the crash comes a couple of days after the high reading, sometimes a week.

As you may have heard, the VIX futures yesterday put in a 2-day 2 month new high with a 5% jump. It is worth mentioning they are up 9.61% today.