Another Clue

For months and years readers of this blog know I have been watching the cumulative NYSE Advance/Decline line for signals as to when topping might occur. Without this index diverging, I said it would be difficult for any true bear market to start. An updated daily chart of this technical index is below.

Readers can see that as of yesterday's FOMC day, the index has fallen off 'almost' as much as it did in April, but not 'quite' as much. The two arrows lengths are copies of each other. Now I'm not saying it is 'required' for this technical measure to make a full diagonal like price might. It is possible this might fail to make a new high while price goes on to make a higher all-time-high. But, clearly, there is already overlap with the March peak after a shorter wave up in length.

So, market breadth conditions should again be watched as prices rise to see if there is any divergence again with the average stock at the exchange level on significant rallies. Further, should the April low in this measure be undercut, that should start to send out some additional warning signals related to how frothy price might be, and whether or not speculation is ruling the trade or whether price rises accompany economic expansion of a more meaningful type.

So far, we have had economic expansion, some from data center build-outs. Some from programmers being hired to build A-I, some from increased retail sales, partly due to inflation, and some from higher commodity prices themselves, not to mention, unfortunately, those economic increases that accompany a military conflict.

Should the market decide to once again undertake its 'discounting mechanism' role, we'll see if it leads changes in any of the aforementioned sources of GDP growth. It's definitely worth watching.

Have an excellent start to the day,

TraderJoe