Participation Is Waning

Mark Hanna, Market Montage, March 26, 2013. Also see A Question of Leadership.

There are a host of divergences that continue to plague the market.  Yes the major indexes continue to hang in (although the Russell 2000 is lagging badly again today) but you can see below [chart 1] even in the S&P 500, participation has been weakening since latter January – as the index continues to roll upward, fewer stocks are participating as shown by the % of S&P 500 stocks over their 50 day moving average. This figure was in the 90%s range in January but dropped to mid 80%s during the prior March peak.  As we go to try to touch those highs again today, the figure will be closer to the mid 70%s (it won't be updated with today's data until after the close but based on what is apparent in sector participation there won't be any huge surge).  To put that in easy context when the market corrected in February, at its worst this figure was still in the low 60%s.  So even as the S&P 500 is nearing highs there is only a 10% uptick in participation.  Strange.

In the end I understand only price pays and that's all anyone cares about but we saw a similar situation in late winter/early spring 2012 when the market was "all about Apple" and a select group of stocks was leading the indexes up while participation weakened.  Even then (March 2012) it was still in the 80% range.  That took 4-6 weeks to fully play out before it collapsed on itself but we are seeing the same hallmarks for now.  It can change in the future but right now it's another yellow flag.