U.S. Stocks ‘Breadth’ Reaches 6-Month High: Technical Analysis

(Bloomberg) -- A gauge that rises when more stocks gain than fall climbed to its highest level of 2009 yesterday, a sign to technical analysts that the Standard & Poor’s 500 Index may keep rallying after jumping 30 percent since March 9.The so-called cumulative advance-decline line for securities listed on the New York Stock Exchange added 2,031 points, or 8.1 percent, to 27,210, the highest since Oct. 6. The increase represents the difference between the number of NYSE stocks that rose and fell. The index was set at zero in August 1996.

“Breadth has confirmed the S&P’s advance,” said John Roque, managing director in technical analysis at Natixis Bleichroeder Inc. in New York. “As long as breadth remains firm to strong, the market gets the benefit of the doubt.” Technical analysts make predictions based on price and volume charts.

Other signs U.S. stocks may extend their rebound from the 12-year low in March include historically low levels of stocks making 52-week highs or trading above their average price over the past 200 days, Roque said. When those reach historically high levels, market declines often follow, he said.Fourteen NYSE stocks made 52-week highs yesterday, almost double the year-to-date average. In 2007, when the S&P 500 rose to a record, new 52-week highs averaged 130 a day. The number of NYSE stocks trading above their 200-day moving average, which fell to 1 percent in March, climbed to 29 percent yesterday. The highest levels on record since 1994 exceeded 80 percent.

Pares Drop
Following a 38 percent decline by the main benchmark for American equities in 2008, its worst year since 1937, the S&P 500 lost as much as 25 percent this year. The index rose 0.1 percent to 874.47 as of 12:54 p.m., paring its year-to-date drop to 3.2 percent, as companies including Owens-Illinois Inc., Newell Rubbermaid Inc., Expedia Inc., Dow Chemical Co. and International Paper Co. reported profits that beat the average analyst estimate.S&P 500 companies still are headed for a seventh consecutive quarter of declining profits, the longest streak on record. At the 309 companies that have reported first-quarter results, profits fell 33 percent on average, according to Bloomberg calculations.Narrower measures of U.S. stock market breadth have yet to reach new highs for the year. The cumulative advance-decline line for NYSE stocks, which excludes closed-end mutual funds and preferred shares, closed yesterday at the highest level since Jan. 8. For companies in the S&P 500, the gauge is the highest since Feb. 9.