By Ryan Vlastelica
NEW YORK (Reuters) - U.S. stocks were higher on Tuesday, but despite the gain in major indexes the ratio of advancing stocks to declining ones was weak, which Cantor Fitzgerald sees as a sign of markets becoming stretched.
About 52 percent of stocks traded on the New York Stock Exchange were higher on Tuesday, and while the Nasdaq Composite index rose 0.2 percent, only 39 percent of Nasdaq-listed names were higher on the day.
Investors look to the A/D line as an indicator of the breadth of market strength, and lately it has been showing signs of weakness. Over the past 50 sessions, an average of 1,491 NYSE stocks rose on the day, down sharply from the 1,686 average in late June. There has been a similar trend among Nasdaq names, and both exchanges have seen their advancers diverge from new highs on the S&P 500.
The divergence is "another stress line in the foundation of the market that make otherwise unremarkable potential catalysts even more important," Cantor wrote in a note to clients, adding that it had seen this trend in the past: in September 2012, April 2011 and October 2011, all periods that presaged a market pullback.
"This condition now makes us considerably more (tactically) bearish, especially in combination with all the other metrics we consider," the firm wrote. "The divergence indicates a condition which arguably can't persist for long."
(Editing by Nick Zieminski)
