Market Support Is Deteriorating Fast as the market rally to date has been defined by the five largest stocks in the index. Via Goldman Sachs: 

Market Support Deteriorating

“Broader participation in the rally will be needed for the aggregate S&P 500 index to climb meaningfully higher. The modest upside for the largest stocks means the remaining 495 constituents will need to rally to lift the aggregate index.”

Such also becomes problematic when corporations are issuing debt at a record pace to supplant liquidity needs to offset the economic crisis rather than repurchasing shares. It’s worth remembering that over the last decade, buybacks have accounted for almost 100% of net stock buying.

Market Support Deterioration 2

Overbought & Extended

Besides the supportive underpinnings, the technical backdrop is also conducive for corrective action in the short-term. Here is something that is more compelling:

“The number of stocks above the 50-dma is pushing record levels. Historically, whenever all of the overbought/sold indicators have aligned, along with the vast majority of stocks being above the 50-dma, corrections were close.”

Market Support Deterioration 3

Such doesn’t mean a “bear market” is about to start. It does suggest, at a minimum, a correction back to support is likely.

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