Stock Market Indicators Have Weakened

And stock market valuations are very high.

We offer a word of caution for those invested in the stock market.

While the stock market has been reaching new records, darkly bearish signs are lurking.

First of all, recent weeks have seen sharp drops in the percentage of stocks above their 50-day moving averages.  This is a sign that #market strength is weakening.

Major stock-market indexes are trading near record levels.  However, that statistic may simply mask an ominous picture that’s being painted behind the scenes.  Market breadth has turned “exceedingly negative.” Market breadth is a measure of how many stocks are rising versus the number that are dropping.  This according to Brad Lamensdorf.   Lamensdorf runs an exchange-traded fund that “shorts” stocks.  That is, he bets that they will fall.

“As the indexes continue to produce a series of higher highs, subsurface conditions are painting an entirely different picture.”  He noted that the year-to-date advance in equities — the S&P 500 SPX – is up 10.6% in 2017.  However, market gains have not been broad based.  This gain has been driven by outsize gains in some of the market’s biggest names.

For example, the FAANG stocks have by themselves contributed more than 28% of the benchmark index’s gain.  “FAANG stocks” refers to a quintet of more prominent technology and internet names.

As a result, “the good performance of these large companies is masking the fact that many stocks have already entered bear-market territory.”

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