BUSINESS NEWS - From the start of the year to the end of July the FTSE/JSE All Share Index (ALSI) was down 1.9%. While this marginally negative performance may be frustrating for investors, it isn’t necessarily eye-catching.
However, if one looks a bit deeper, the state of the market becomes more concerning. A market breadth study conducted by Methodical Investment Management to the end of July shows that only 33% of the 160 stocks in the ALSI are up so far this year.
In other words, the market is being supported by only a few stocks, and according to Methodical’s chief investment officer, Steven van Jaarsveld, this number is growing smaller.
“The whole market is pulling down, but from an index level people don’t realise it,” he says. “The man on the street might think that this market is not in such a bad place, but looking at the breadth of the market, there is something brewing.”
As a momentum investor, Methodical is particularly interested in this trend because directionality is important and it is becoming more and more difficult to find any positive momentum on the JSE.
“We started seeing this from around November last year,” Van Jaarsveld notes. “By January we started seeing that there is very little breadth in the market, and it’s just gotten worse.”
So far this year the JSE has relied on a handful of resource counters, led by BHP Billiton and Anglo American, and Naspers for support. A few bank shares and local retailers have been up, but there is little else in the positive column.