Momentum Strengthens as NYSE Advance-Decline Line Hits New All-Time Highs

1) RATES – Well, for the first time in a while, it doesn’t look like the Non-Farm Payroll report was leaked.  Why?  Because the number came in WAY above consensus at 130,000 vs. just 70,000 consensus expectations.  Moreover, rates reacted pretty wildly this AM after the report.  The 2YR Yield went straight up from 3.49% to 3.53% and back to neutral trend.  That doesn’t look like much, but that’s a big move for that yield.  It could just be a knee-jerk reaction and not necessarily a read on the Fed’s expectations for rate cuts because the US Dollar Index (DXY) is barely moving on the data.  If the market expected no chance of rate cuts coming, the Dollar would be going up a fair amount on a  report like this.  The Dollar is still in a bearish (downward bias) trend.  Longer-dated yields spend just one day in neutral.  We’ll have to see how they act here, but it doesn’t look like they want to give up their bullish (higher bias) trends just yet.

2) GOLD / SILVER – Importantly, Gold and Silver volatility (GVZ and VXSLV) got hammered lower yesterday.  GVZ was down over -12% and VXSLV was down almost -14%.  That is considerable.  Both of these volatility metrics need to break down further for them to have a bearish (downward bias) trend, but yesterday was a good start.  If these volatility metrics can really settle down, we’d likely start to see a healthy bottom formation start to take hold.  Gold is bumping up against that first area of resistance that I’ve pointed to…the $5,100 area.  Even though volatility came down a lot yesterday, it is still elevated suggesting gold likely still has some chopping/consolidation action in front of it.  Silver is still consolidating, but acting pretty decent considering how high volatility is (VXSLV = 85).

3) NYSE  – This week, the NYSE Advance-Decline Line once again pushed to new all-time highs, signaling that upside participation continues to broaden, not deteriorate.  The NYSE Advance-Decline Line is one of the clearest measures of market breadth we have.  It tracks a cumulative running total of advancing stocks minus declining stocks on the New York Stock Exchange.  Each trading day adds the net number of advancers to the prior reading, allowing us to see whether participation across the market is expanding or quietly rolling over.  Right now, it's expanding.  During bull markets, a common pushback to bullish evidence is a reminder of past market peaks.  The argument is usually the same: that this looks just like the top before the last big decline.  Ahead of the Great Financial Crisis, the NYSE Advance-Decline Line was already breaking down well before prices followed.  The A-D line peaked in early June 2007 and was in a clear downtrend by the time the S&P 500 finally topped in mid-October, more than four months later.  The same pattern showed up before the 2022 bear market.  The A-D Line made its high in June 2021, briefly retested that level in November, and then failed decisively.  By the time the S&P 500 peaked in January 2022, breadth had already rolled over and was pulling the market lower.  You saw a similar setup ahead of the COVID crash.  The A-D line peaked in January, well over a month before the S&P 500 and the rest of the market collapsed.  Now contrast that with today with the NYSE A-D hitting highs.  Notwithstanding event or “newsy” driven bouts of volatility, markets are healthier than some would have you believe.  One area to keep an eye on is implied volatility, as it has come down a lot for the S&P 500.  It is still signaling a PREMIUM suggesting a hedged market, but it has come down a lot from 60% one month ago to 19% today.  That isn’t an alarm, but IF (that’s a large if) it flips into a DISCOUNT markets would be more complacent than I’d like.