Style and factor analysis reveals the challenges for bulls and bears

Mid-week market update: The Dow has made another record high. Most technical analysts would interpret such a development bullishly as there is nothing more bullish than a stock or index making a new all-time high. However, there is the nagging problem of poor breadth.

In the past few weeks, I have been warning about the precarious technical condition of the stock market. On Monday, I wrote about the narrowing Bollinger Band of the VIX Index, which is a sign of complacency, and the pattern of declining new highs on both NYSE and NASDAQ stocks even as the market advanced to all-time highs (see The calm before the storm?). The negative breadth divergence has gotten so that that it has prompted analysts like SentimenTrader to point out the ominous historical parallels with the Tech Bubble top.

He also highlighted the historical record of poor breadth when the DJIA made a new high.

Rather than obsess endless about the negative breadth divergence, I examined performance market cap, style, or factor, rotation. The analysis yielded some surprising answers, and laid out the challenges for the bulls and bears.

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