The S & P 500 reaching all-time highs when breadth remains weak historically has been followed by lackluster returns, according to Oppenheimer. The benchmark made fresh record highs last week, with stocks climbing out of their April lows in spite of ongoing macroeconomic uncertainty. However, a peek under the hood has at least one chart analyst concerned for the health of the rally. Since 1972, the S & P 500 has posted below-average returns over the next one, three, six and 12 months when new records were made with fewer than 100 stocks on the New York Stock Exchange also posting highs, according to Oppenheimer’s Ari Wald. “There’s a fine line between a top and breakout,” Wald wrote on Saturday. “It’s important to monitor this bottom-up divergence because cap-weighted strength has a tendency to mask underlying weakness later in the equity cycle.” .SPX YTD mountain S & P 500, year to date Even so, Wald is confident the stock market rally can continue. He cited the rise of the small cap Russell 2000 last week above its 200-day moving average, an indicator for long-term trends, that suggests participation among large caps can also broaden out. “As Go Small-Caps, So Goes the Cycle,” he wrote. “We can assume the re-broadening trade is intact while the Russell upholds its 200-day average at 2,175.” However, Wald warned that a failure to hold above the 200-day moving average for the Russell 2000 would raise the odds of a market top forming. He wrote the S & P 500 has support at 6,147, and then at 6,030. The broader index’s 200-day moving average is at 5,840. The Russell’s 200-day average sits at 2,176.11. On Monday, stocks fell as investors tracked the latest developments on the trade front. The Dow Jones Industrial Average dropped 300 points, or 0.7%. The S & P 500 slid 0.6%, and the Nasdaq Composite lost 0.7%.
