As you probably know, we are big proponents of good breadth, or participation, among stocks as confirmation of the strength of a stock market rally. In other words, the more stocks that are participating in a rally, the better. When the major averages are rallying on the backs of only a relatively small number of mega-cap stocks, you’ll hear technicians complain about the “thinness” of the rally. The large caps are rallying, they’ll say, but the “average” stock is not participating. Well, the good news is that the “average” stock is participating in the current advance.
We draw that conclusion from today’s Chart Of The Day, which highlights action in the Value Line Arithmetic Index (VLA). The VLA tracks the performance of the average stock in a universe of approximately 1800 stocks. As of yesterday, the VLA had made it all the way back to its January all-time highs.
Whether or not the “average” VLA index cracks through its former highs and establishes a new up-leg remains to be seen, as does the extent of any new up-leg. However, at this point, any argument that the “average” stock is not participating in this rally appears to be unfounded — and that is good news for the average investor.
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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
The SPDR Dow Jones Industrial Average ETF (DIA) closed at $253.27 on Friday, up $0.74 (+0.29%). Year-to-date, DIA has gained 3.23%, versus a 4.66% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Dana Lyons, JLFMI and My401kPro.