Advance/Decline Lines Continue to Send Mixed Signals

DJIA and S&P 500 moved closer to their respective all-time closing highs today, but NASDAQ and Russell 2000 did not partake in today’s rally. This is basically the exact opposite of what transpired in August when NASDAQ and Russell 2000 were leading. In the following chart today’s mixed performance is confirmed by the mixed advance/decline lines for the NYSE Comp, NASDAQ, Russell 2000 and S&P 500. Index performance is included in the top of the chart.

Mixed advance/decline lines are not necessarily bearish, but they are also not all that bullish either. In the near-term, further gains could be laborious as fewer and fewer stocks contribute to the rally. A more bearish scenario that could also be telegraphed by mixed advance/decline lines would be a period of broader weakness could be near if lagging stocks continue to weigh. As long as earnings expectations and economic data remain firm the most likely outcome could be similar to what transpired in July when a similar situation to now developed, tech and small-caps took a short breather before breaking out to new highs in August.