Divergence City

The past month has been a tale of messy, choppy action for stocks. Some names are holding up fine, while others are getting hit hard.

When things get this split, I like to look at market internals. That’s where you really see what’s happening beneath the surface.

The Advance-Decline line is a good place to start. It measures breadth by tracking cumulative net advances over time.

Right now, the NYSE Advance-Decline line is sitting at new 6-month lows.

We can point to the fact that the new highs in the indexes have not been confirmed by breadth.

You see the same divergence when you look at the percentage of stocks above their 200-day moving average.

That reading is at its lowest level in four months. Maybe it’s not a huge deal yet, but bulls don’t want to see that line keep rolling over.

In a healthy market, I like to see this percentage above 60%… but for now, it’s divergence city from where I’m sitting.

The question now is how much further will indexes catch down? Or is this it, with breadth ready to catch up for a potential year-end rally?

Answer this email and let me know what you think. I’d love to hear from you.

Yesterday, I went live with Steve Strazza, and we walked through how we use our custom scans to spot the best stocks to buy.

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Alfonso De Pablos, CMT

Director of Research, All Star Charts