Market Breadth Weekly Update: Part 2
Under The Hood
S&P 500 vs. NYSE Advances/Declines: The Hidden Market Pulse Investors Can’t Ignore
The chart you’re looking at holds a key to understanding market momentum in a way most investors overlook. At first glance, we have the S&P 500 in turquoise, a widely-followed barometer for U.S. equities, trending steadily higher. But the white line? That’s where things get really interesting.
This proprietary NYSE Advances vs. Declines indicator is essentially the heartbeat of market breadth—showing how many stocks are advancing versus declining on the New York Stock Exchange. What does this mean for you? It reveals how much internal strength the market truly has, not just the surface-level price movements of large-cap stocks.
Reading Between the Lines: Why This Matters
While most traders are fixated on the S&P 500’s latest record highs or pullbacks, they’re missing what’s happening underneath the hood. The white line—tracking the net advances versus declines—gives us a sneak peek into what’s actually driving the market.
Here’s what stands out:
Divergences Are Telling: If the S&P 500 continues to climb but the advance/decline line starts trending downward, it could signal that fewer stocks are participating in the rally. This is often a precursor to market corrections. Why? Because it tells us that the broader market is losing steam, even if a few mega-cap stocks are dragging the index higher.
Confirming Market Moves: Right now, we can see that the advance/decline line (white line) has been moving in lockstep with the S&P 500. This is a bullish sign—it indicates that the rally is broad-based, with many stocks across sectors participating. When both lines move higher together, it’s a green light for continued gains.
Internal Strength Is Key: Markets often have false breakouts or rallies that are led by only a handful of stocks, but this is not one of those cases. The proprietary indicator shows robust internal market strength, with broad participation among stocks. This gives the rally legs and reduces the risk of a sudden pullback. Simply put, this isn't a fragile rally; it’s a steady, reliable uptrend.
