Inside Markets — Negative Market Breadth

The advance/decline line on the S&P 500 (SPX) has remained in negative territory for 11 straight sessions. Negative market breadth is generally considered to be a bearish signal, but more context is needed. Negative breadth is a bearish signal when defensive leadership develops as the market makes new highs. The last time this happened was in January 2020, just before Covid ‘made landfall’ in the US and elsewhere. Defensive sectors led the SPX higher for six sessions before we identified it as a bearish signal on January 17, 2020. The SPX started a ~30% peak-to-trough decline ~4 weeks later on February 21. At the moment, we take no signal from the current streak of negative market breadth given secular growth leadership and defensive sector underperformance.