Update 2 – Breadth of the US Equity Market

If you’ve followed along the previous posts, you know that the breadth of an equity market is a key indicator we watch for clues on the strength of that market.

We wrote last month:

US Market Diary

“While the picture still looks muddy the point of inflection, the moment of truth, seems to be very close. It will soon be clear if the 1 year EMA of the new lows (depicted in red in charts above) will cross over the 1 year EMA of the new highs (depicted in green in charts above) invalidating our hypothesis that the previous cross over was a signal to sell short equities.”

A clear picture, emerges:

US Market Diary

The 1 year EMA of new lows has clearly crossed over the 1 year EMA of new highs and this invalidates our hypothesis that the US stock market is weak, that the previous cross over was a signal to go short US equities.

We see this as a bullish signal for US equities, and will continue to be positioned long, at least until the two EMAs cross each other again. In this Battle Royale, between earnings and earning’s yield premium, the breadth of the US equity market is telling us that, the latter is kicking the former’s derrièr.

Despite negative year over year growth rate of S&P 500 earnings (as shown in the chart below), the index continues to make new highs (second chart below); low long term rates make S&P 500 earning’s yield look like hedge-fund returns. Equity Risk Premium is the name of the game.

US Earnings


A rising long term yield will be the nemesis of this bull market.