Breadth Deteriorating

My weekly proprietary breadth indicator fell again. It has fallen 4 weeks in a row for the Nasdaq 100 and the SMH. Even as the Dow was straining to make a new high today, NYSE new highs fell to 134 from over 400 a week ago. The distribution count as measured by IBD continues to grow with the SP500 at 8 distribution days. When the indexes are rising but breadth in various measures is declining we can be reasonably sure that large investors are selling into strength. Sure we would all like to have skin in the game when Amazon pops 14 points after hours, but over the long haul, we will earn some multiple of what individual stocks are doing in the aggregate, so as exciting as catching a big winner like that can be, it is better to be positioned with the direction of the broader market.

One activity that I like to do about once a month is make a quick tally of where the stocks in the Dow are in their elliott wave counts to see if the overall prospects are bullish or bearish while I compare that against the count of the index itself. Oftentimes these will not be in sync, which will let me know that I need to take a fresh look at my index count. At the moment though, things have reached an interesting stage. By my count, at least 8 Dow stocks have completed, or nearly so, a 5 wave count at the intermediate time frame, while another 4 have completed, or nearly, so bearish patterns. For example, WMT and MCD appear to have completed bearish triangles. IBM and MMM look to have completed 5 waves up, although IBM is not entirely clear. IBM, in particular, is a whopping 9.18% of the index and 8 of the 12 are in the top 15 of index weightings.

It has been my experience that when the patterns in the individual stocks are lining up with the pattern in the index, a move of significance is probably at hand. The Dow looks as though it could still make a new high over the next few days, but this is generally not a good sign when it is doing it alone as may be the case.