Gavekal Capital: This Bull Market Is Narrowing As It Advances...Market Breadth Continues Deteriorating

Wednesday, December 11, 2013

This Bull Market Is Narrowing As It Advances...Market Breadth Continues Deteriorating

The advance-decline ratio is a market breadth indicator that compares the number of stocks that closed higher with the number of stocks that closed lower than their previous day's closing prices. It's a useful tool to understand whether there is broad participation in a market move or if a few very large cap stocks are driving indices one way or another.

We like to look at this data point from various time perspectives. For a longer term perspective, we look at the 200-day moving average of the advance-decline ratio. We also look at the one-year cumulative advance decline ratio. This is a one-year running total of the advance-decline ratio.

The main point here is that no matter how we slice it, market breadth is deteriorating as the rally continues on. Participation is narrowing which would imply the foundation of this bull market is showing some cracks. Below are some charts that visually display this deterioration.

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
We offer the Gavekal Knowledge Leaders Strategy in multiple products for global investors. For more information about our product offerings please visit http://www.gavekalcapital.com.
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