Wide spread deterioration

Market witnessed a big breadth deterioration yesterday. But it was not at all surprising if you were tracking breadth trends.

Breadth was deteriorating for last 2 weeks. There was continuous deterioration. If you have been tracking the Stockbee Market Monitor you would have seen it clearly. We were positioned in cash for the drop in anticipation of this for sometime. And did some quick short trades for nice profit yesterday.

The T2108 Worden indicator that tracks number of stocks above 40 day moving average was also showing same thing. It reached a high of 80 few weeks ago, that kind of extremely bullish breadth tends to attract pullbacks and especially in extended bull market attracts profit taking.

This market is like a cat with nine lives , it has repeatedly bounced back from such selling. So task is now once again cut out for dip buyers. If they fail to show up then we might have a 5 to 8% correction.

The sentiments have become extremely bullish with record number of advisers and money managers bullish with expectation of year end rally. Plus money flow in to fund is at record as retail pile on in to stock. That backdrop is not a good sign for the market in short term. Markets climbing wall of worry is better than a market which is wildly bullish.

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