The title of this week’s note is not a relapse into my default “Doomsday Dan” setting. It’s an objective look at what’s been happening beneath the surface of the market over the past few weeks—and what intensified last week.
Yes, the trend remains bullish, seasonality is in play as we move through the final week of November and Thanksgiving. However, we’re seeing cracks in breadth and deterioration in some—though not all—intermarket themes.
S&P 500 & NASDAQ 100
For three consecutive weeks, both the S&P 500 and NASDAQ 100 have closed below their weekly opens (black candles). Admittedly, that’s not a great look. It signals an unwillingness by investors to carry risk into the weekend.
Despite this, both indices remain in uptrends above rising 60-week moving averages, keeping our view of last week’s pause intact.
Source: Optuma
Dow Jones Transportation Average
The weekly chart of the Dow Jones Transportation Average remains…fine. Is it great? No. Is it terrible? Also no. The average is holding above its 27-week moving average while continuing a four-year consolidation.
Source: Optuma
NYSE Advance/Decline Line
So, where’s the damage? It’s here. The NYSE Advance/Decline Line has been diverging for weeks. A small divergence is usually nothing to worry about. But persistent weakness can become a concern.
We like to see the one-year stochastic of the A/D Line above 80—that’s healthy. Between 80 and 60, investors should have their radar tuned in. Sustained moves below 60 have historically coincided with deeper equity declines. Last week, this metric slipped below 60. Bulls want to see a quick rebound.
Source: Optuma
Credit Spreads
Damage is also showing up here—and it’s not getting enough attention. About five weeks ago, the market was fixated on private credit after a $10 billion-plus bankruptcy of a company few had heard of. There was talk of contagion as charts of key players circulated. Then the news cycle shifted, and attention moved on.
That’s why this chart surprised me: the High Yield Option-Adjusted Spread has stayed fairly flat, while the CCC-and-below version continues to widen. In plain English, even though headlines have moved on, credit traders remain concerned about the junkiest parts of the junk bond market.
Source: Optuma
Final Thoughts
The equity market is not broken—not even close. The trend is still bullish. But it’s also not as healthy as a strong bull should be. Cracks are forming under the surface, as seen in the A/D Line, and concerns linger in the riskiest corners of the credit market.
Finally, I am thankful to all of you who take the time to read this note each week and who engage with Potomac as a trusted partner. I hope that you have a Happy Thanksgiving spending time with the people who mean the most to you.
Dan Russo, CMT
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