Vincent Randazzo, CMT, portfolio manager at Tamarisk and manager of the Defender Risk Adaptive 500 ETF (SPDF), says recent headline index weakness masks improving internal breadth measures across U.S. equity markets.
Randazzo described the post-March lows rally as progressing through three distinct phases of participation. He said the rebound that followed what he called the rally off the March 30 low actually began with broad participation. Specifically, the percentage of Russell 3000 stocks trading above their 20-, 50- and 100-day moving averages climbed off March 20 lows even before major indexes reached their bottom - a development he labeled "a constructive signal with a solid historical track record."
That broad foundation, Randazzo said, started to show signs of stress around April 20. At that point advance-decline lines across multiple indexes, including the S&P 500, peaked even as headline indexes continued to climb. From April 20 until the June 2 market high, he said, the advance became narrower and more concentrated, driven largely by technology, with semiconductors and AI-related stocks leading the move.
Randazzo highlighted an extreme reading at the peak of that narrowing: only 27% of S&P 500 constituents had outperformed the index over the trailing 30 trading days. He described that figure as "a historically extreme reading," and said such negative breadth divergences typically signal a market vulnerable to at least a consolidation or pullback. "Those negative breadth divergences reflected exactly the kind of narrowing stock participation that typically leaves markets vulnerable to at least a consolidation or pullback," he said.
The third phase is the one Randazzo called the most interesting. He noted that since the June 2 high, cap-weighted indexes have retreated about 4.5% through June 10. Yet, he emphasized, the internal evidence does not look like liquidity fleeing the market.
On June 10, when the Dow fell 1.87% and the S&P 500 dropped 1.62%, the NYSE still recorded nearly twice as many new 52-week highs as new lows, and decliners accounted for only 61% of issues traded. "When liquidity is truly exiting a market, breadth deteriorates more severely. That is not what we're seeing," Randazzo said.
He pointed to the NYSE Advance-Decline Line, which slipped by fewer than 1,500 net issues from the June 2 high through Wednesday's close even as the index fell more than 4%. On June 11, he said, the Russell 3000 and S&P 600 Advance-Decline Lines reached multi-year highs, while the S&P 1500 A-D Line recorded a new all-time high.
"These are not the breadth signatures of a cyclical market top," Randazzo said. "They are evidence of a long-term advance that is quietly and meaningfully broadening beneath the surface. That is the exact opposite of what the past week's headlines, and even day-to-day price movements, would imply."
He added that while the rally had become increasingly concentrated into the June 2 high, participation is broadening again. "The rally was becoming increasingly concentrated into the June 2nd high, but it is broadening again now," he said. "Investors may be focusing on the pullback in the indexes, but the internal evidence suggests the foundation of the advance is actually becoming more robust, not weaker."
What Randazzo is tracking
- Percent of Russell 3000 stocks trading above 20-, 50- and 100-day moving averages - climbed off March 20 lows.
- Advance-decline lines - peaked around April 20 and later showed multi-year or all-time highs for several broad-market measures.
- Concentration of leadership - the rally narrowed into a tech-led advance culminating around June 2, with semiconductors and AI-related names prominent.
- Breadth behavior during recent pullback - despite roughly a 4.5% decline in cap-weighted indexes through June 10, the NYSE posted nearly twice as many new 52-week highs as lows on June 10, and decliners represented 61% of issues traded that day.
Randazzo's assessment emphasizes market internals rather than headline index levels, arguing that breadth indicators suggest a broadening advance underneath recent price weakness.