MARKET BREADTH REMAINS WEAK -- FINANCIALS AND MATERIALS LEAD DECLINE -- WEAK COPPER AND REGIONAL BANKS WEIGH ON MARKET
BAD BREADTH CONTINUES... Several recent messages have demonstrated poor stock market breadth. Unfortunately, that negative situation hasn't shown any improvement. One of the charts used to demonstrate that negative situation is repeated below. Chart 1 compares the S&P 500 Large Cap Index (black bars) to the S&P 500 Unweighted Index (red line) over the past year. It shows both lines trading pretty much in sync for most of that time. Over the last three months, however, the red line has lagged noticeably behind the black bars. As a result, the last rebound in the S&P 500 hasn't been confirmed by smaller stocks. That's normally a warning that the SPX is on weaker technical footing. And that's happening while the SPX is up against formidable chart resistance at its February high.
THREE-MONTH SECTOR PERFORMANCE...Chart 2 shows where most of that weak breadth has come from. It shows only four S&P sectors gaining ground during the last three months which include communication services, technology, consumer staples and utilities. The first two have contributed the most to the market's spring rally which has helped make the Nasdaq the market's strongest index, while the second two show investors still favoring defensive sectors. The other seven S&P sectors have lost ground. Our main interest today is with three of the weakest sectors that include financials (mainly banks), energy, and materials (mainly industrial metals).
FINANCIALS, ENERGY, AND MATERIALS WEIGH ON MARKET...The main box in Chart 3 shows the S&P 500 up against resistance at its February high and with moving average lines in positive alignment. The lower three boxes, however, show the three weakest sectors falling closer to their March low. Financials are being led lower by bank stocks which have been under a lot of pressure. Weakness in energy and materials are following their commodity prices lower which could be a sign of a weakening economy. That's especially true of falling copper prices.
COPPER TUMBLES... Chart 4 shows copper falling to the lowest level of the year. The red metal has also violated its 200-day moving average. Copper is considered to be one of the most economically-sensitive commodities and its direction usually tells us something about the strength of the economy. This week's tumble isn't a good sign.
REGIONAL BANKS REMAIN WEAK... Regional banks have been the weakest part of the stock market this year, and that may represent one of the biggest threats to the overall market. Chart 5 shows the S&P Regional Banking SPDR plunging to the lowest level since 2020. And it's ending the week under more selling. It's hard to imagine the rest of the market gaining much ground while bank stocks remain under pressure. The main message of all of the charts shown herein is that the broader stock market isn't as strong as the major indexes suggest.
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