I'm very pleased to announce that we now have a chart showing the S&P 600 Small-Cap stocks above their 200-EMA, 50-EMA, and 20-EMA. But wait! There's more! We also have this chart for the S&P 400 Mid-Cap, S&P 500, Nasdaq, Nasdaq 100, S&P 100, and NYSE Composite.
In my opinion, this is a much better picture of breadth than advance-decline numbers, particularly since decimalization has introduced so much volatility into them. (A change of only a penny can classify a stock as an advance or decline.) The relationship of a stock's price to these three moving averages gives us concrete evidence regarding market strength in the short-, intermediate-, and long-term. By "concrete" I mean that when price is above a moving average, it is bullish. When it is below, it is bearish. When we can see a summary of all the stocks in a given index, we have a pretty good idea of how broadly based the strength or weakness is in that index.
These charts also tell us whether the index is overbought or oversold in the three time frames.
Another interesting feature of this chart is that we can see the negative divergences in the 200-EMA and 50-EMA. You'll notice that intermediate-term internals began to weaken well before the April 2004 top in the S&P 600 Index, but the long-term 200-EMA top came in January of this year. Internal tops can lead the actual price tops by quite a bit because the larger-cap stocks will carry the cap-weighted index, while the smaller-cap stocks are falling into a ditch.
Now the price index has broken a rising trend line, and the internals are quite a bit weaker and show less support for the snapback rally. This is definitely cause for concern.
The charts for the large-cap indexes are showing similar weakness internally, but prices reflect that participation in the bull market is narrowing, with the large-cap stocks carrying those cap-weighted indexes.
