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June 2023 Monthly Outlook - Lack of Participation

June 05, 2023

Well it looks like we will avert a debit limit crisis and potential default on US government debt.  That is a huge relief.

May was a flat month in the financial markets with stocks gaining 0.25% while interest rates rose 0.08%.  Of note, the S&P 500 finally had a close above the 4,200 level I have written about as serious resistance. It had not been able to close above that level since last August.  Now we see if it can stay above that level.

One concern I have is that the participation in this recent climb to 4,200 has been weak.  It has just been a handful of individual large cap stocks that the driven the S&P 500 higher.  Generally, solid bull markets have broad participation, with many stocks moving higher in tandem.

There are 3 ways I monitor participation in the stock market.  I look at (1) the percentage of stocks trading above their 50 day moving average and (2) the percentage of stocks trading above their 200 day moving average.  50 days represent 10 trading weeks and 200 days represents 40 trading weeks.  If a stock is trading above these short-term (50 day) and long-term (200 days) moving average, it is generally considered a strong stock in an uptrend.  The third indicator I look at is the percentage of stocks on a Buy signal.  The methodology used in this indicator is called Point-and-Figure, which is too lengthy to describe here,  but it basically highlights which individual stocks are on a Buy (vs Sell) signal.

Ideally, you want to see all 3 of these indicators above 50% and rising in tandem with the S&P 500.  At a minimum, you want to see these 3 indicators rising while the S&P 500 is rising.  Unfortunately, that is not what I am seeing right now.  The chart below shows the S&P 500 in the top panel, then the % of stocks trading above their 200 day moving average and % of stocks above their 50 day moving average and lastly the % of stocks on Buy signals.

As you will see, all 3 indicators are below 50% and trending down, while the S&P 500 is trending up.  This is called a negative divergence, meaning the market is going up while the breadth indicators are going down.  Notice how the last time the market tried to break through 4,200 in February 2022 (blue circles), the indicators were all well above 50% and trending higher, in conjunction with the S&P 500.

So where do we go from here?  Negative divergences like the one I am seeing resolve in 1 of 2 ways.  The indicators reverse trend and start to increase along with the market – this would be bullish and see the market continue to move higher.  Alternatively, the few stocks propping the market up right now reverse trend and start to decrease along with the indicators – this would be bearish and the market would pull back from 4,200 as it did back in February.

Only time will tell how this resolves.  I am remaining neutrally positioned for the time being.

I hope this update is useful for you.  Feel free to reach out with any questions.



June Calendar of Events   (comments and additions for future months are always welcome)

  • June is LGBTQ Pride Month.  I’m an incredibly proud father of a daughter in an awesome same sex marriage.  So let’s all work towards acceptance and inclusion of people regardless of their sexual orientation.


June 14th          Flag Day  

June 18th          Father’s Day  – wishing all father’s, grandfathers, and great grandfathers a wonderful day.                

June 21st          Summer begins.  Enjoy it safely 

June 27th         National Ice Cream Cake day!      





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