The loss of breadth and momentum since mid-December has been notable to say the least. While the S&P 500 remains in an uptrend, the market has become narrow again, with only 24% of stocks above their 50-day moving average and only 29% of stocks outperforming the index. We are back to 2023’s market dynamic, it seems.
This daily chart of the Russell 2000 index (below) is not comforting either. As I wrote last week, when markets are not trending, they are often stuck in either continuation patterns or reversal patterns. The wedge pattern on the Russell 2000 was indeed the former. The best thing I can say is that the index now sits on its uptrend line and is sporting a small bullish divergence (lower panel).
I think that the cyclical bull market remains intact, but is in later innings (when exactly this sort of thing happens). I expect that earnings growth will ultimately carry the day and potentially push the market higher, but rate tantrums are a reminder that it doesn’t take much to disrupt the market’s mojo when valuations are high.