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When Is A Correction Not A Correction?

BreadthDouble click on any chart for a full size view

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When I want to get a visual representation of what is happening in the market beyond how the indices say the market is performing, I look at the graph above.  This is a breadth indicator I follow that reports the percentage of stocks in the S&P 500 that are trading above their 200-day moving average (the gold bars) and their 50-day moving average (the black bars superimposed over the gold bars).

I like this because at a glance I can see the trend in prices for the 500 companies in the index when they are not obscured by the weighting calculation of the index itself.

What I see above is that less than half the companies in the index are trading above their 50-day moving average and that the trend over the past six months – albeit with some definite up/down movement – is downward.   What I also see is that slightly above half the companies in the index are trading above their 200-day moving average and that the trend over the past six months is also downward.

In the graph below, you can see which markets are performing well and which are not year-to-date:

Index Performance

The NASDAQ is the big winner, followed by mid-cap stocks (2015 is the year of the Growth Stock, something I personally am enjoying since I manage our growth and aggressive growth investment strategies).  The S&P 500 is up just over 1% – but the telling performance is of the Dividend Stocks and the Blue Chips (as represented by the Dow Jones Industrial Average).

Over the past few years, investors have flooded into the Dividend Paying Stocks, of which the Blue Chips are are major component, because bonds and CD’s pay so little in interest.  The Dividend Stock Index has a 3.21% yield, significantly higher than the 0.71% yield on a two-year treasury or similar term CD.

Investors who have flooded into these dividend paying stocks for the cash flow they provide see that even though the news is reporting the stock market is up on the year (remember the S&P 500 is up roughly 1%) they are down 2% to 5% year-to-date – and maybe a heck of a lot more if they loaded up on >4% yielding energy stocks.

Take a look at some of the economic sectors where the dividend paying stocks are concentrated:

Sector PerformanceUtilities are down almost 4%; Industrials are down almost 5%; and Energy companies are down almost 13%.

The Health Care sector appears to be a winner for dividend investors, but that +9% YTD return is skewed by the performance of the biotech sector, up +22% YTD.   Traditional health care dividend investments, like Johnson & Johnson (down 5% YTD), Bristol Myers (up 6% YTD) and Merck (up 5% YTD) are not performing as well – the exceptions are Pfizer and Lilly, both up double digits due primarily to their biotech exposure.

Yes, the news is reporting that the stock market is up.  But if you are a typical investor who only has eyes for blue chip dividend stocks, you are feeling some pain in 2015.

Mark