The Stock Market in Trouble – How Bad Can it Get?


A Look at the Broader Market’s Internals

We have previously discussed the stock market’s deteriorating internals, and in light of recent market weakness want to take a brief look at the broader market in the form if the NYSE Index (NYA). First it has to be noted that a majority of the stocks in the NYA are already in bearish trends. The chart below shows the NYA and the percentage of stocks above their 200 day and 50 day moving averages, which is 3916% and 33.77% respectively.

When more than 60% of stocks in the broader market trade below their 200 dma with the SPX not too far off an all time high, it is clear that cap-weighted indexes are help up by an ever smaller number of big cap stocks. This typically happens near important trend changes, but it is not always certain that the market will decline significantly when such a divergence occurs.


Is he about to make his entrance?

Cartoon via



One possibility is also that the market merely corrects, and resume its rally once a sufficient number of stocks becomes oversold. That said, the broader market hasn’t made any headway in more than half a year, with the volatility of major indexes and averages declining to multi-decade lows. It is certainly tempting to classify this period as one of distribution, especially given recent weakness.

In the short term, the large number of stocks in a downtrend may actually help produce a bounce, especially as some sentiment indicators such as equity put/call ratios have increased to a level usually associated with short term lows. However, we believe one has to take a differentiated approach to interpreting sentiment and positioning data at this juncture and we will explain why in more detail further below.

First let us look at the NYA internals mentioned above.

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