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Strong Breadth Fends Off Sell In May

Well, patience with our Best Six Months Seasonal MACD Sell Signal has sure proved to be a virtue thus far. Both MACD indicators for both the S&P 500 and DJIA went negative in early March and did not all turn positive until the past Monday’s big gains. Now we are getting some bullish confirmation from market breadth. The cumulative Advance/Declines in several major market indices are trending higher and on the brink of more new highs.

In the chart below you can see that the NYSE Composite A/D Line – the broadest of the bunch and most widely tracked – is already at a new high. In the top pane we show the four major averages: Russell 2000, NASDAQ Composite, S&P 500 and DJIA. In the lower panes are the A/D Lines for S&P, R2K, NASDAQ and NYSE. DJIA only has 30 stocks so the A/D is rather choppy and less instructive.

When A/D Lines move inversely to their related index or average that is usually an indication that the benchmark is about to change course as the bulk of its constituents are moving in a different direction. However, despite all the worrisome talk out there and the Sell in May saber rattling, underlying strength is improving though there still is some work to be done.

Since the current rally began just before the election back in early November, market breadth has been supportive. Even during the March to mid-April pullback and consolidation the A/D Line followed along. Now the other A/D Lines are trending higher and about to confirm the new highs on NASDAQ and R2K with new highs of their own.