Stock Market -- Technical Note

Ms. Yellen's latest attempt to 'kite' the market shows some of the magic has been lost. The SPX
has been on the flat side here in Sept., and the NYSE adv. / dec. line has turned down noticeably
this month to diverge negatively with the SPX. The chart I've set up to accompany this post
includes the cumulative NYAD line, the relative strength of the SP 500 on an unweighted basis,
the relative strength of the Russell 200 Small Cap., and the relative strength of the utilities sector.
NYAD Chart

As most know, the breadth of the advance in the broad market has become more exclusive as the
year has worn on. Small cap. indices like the Russell are down on the year and are trailing
significantly in relative performance (3rd. panel of chart). Now, with Sep., the SP 500 on an
unweighted basis has broken down in relative strength as has the NYAD (top 2 panels).

The bottom panel of the chart shows the relative strength of the utilities sector vs. the broad
market. Portfolio managers often use this group as a place to hide cash and earn some
current return. It is often a maneuver that managers resort to when they wish to become
more defensive but remain relatively full invested. The recent rise in bond yields has dimmed
interest in utilities somewhat, but interest has been reasonably well maintained since late last
year when it was announced that QE would eventually be terminated.

I think the downturn in market breadth and the decline in relative strength for the unweighted
SP 500 have recently begun to bother investors just a little bit so far. As we learned over 1998-
2000, market breadth can diverge negatively and substantially from the broader market before
a more substantial and far-reaching break comes. But that might have been the exception, and
it may well be that players would like to see the oversold medium sized and smaller cap. issues
regain some positive footing before the bull market moves up solidly from around the SPX 2000
level.