Breadth: Interpretation of Market Conditions

Research Notes For 30 June to 04 July > https://www.unum.capital/post/r3004july

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This report analyzes the short-term trend rating for JSE Mid & Large Cap constituents over the four weeks of June 2025. Market breadth is a key indicator of the underlying health of the market, showing how many stocks are participating in a given trend.

Overall Thesis: From Sharp Pullback to Constructive Consolidation

The month of June tells a clear story of a sharp, mid-month "risk-off" event that caused significant internal damage. This was followed by a period of stabilization and now, a constructive consolidation. The most recent data shows a significant decrease in bearishly trending stocks as they move into a neutral phase, suggesting the market is building a base for its next potential move.

Cautionary Note: A Divergence to Watch

The four-week trend in market breadth shows a market that has successfully navigated a sharp pullback and is now in a constructive consolidation phase. The rotation from "Bearish" to "Neutral" and "Bullish" is a positive sign for the underlying health of the market.

However, a significant note of caution is warranted. While the internal health of the market (breadth) is improving, the overall JSE index is potentially developing a bear flag chart pattern. A bear flag is a bearish continuation pattern that can form after a sharp down move. This creates a technical divergence: the internals are improving, but the index-level price action is not confirming this strength. This divergence increases the risk of a "bull trap," where the recovery in breadth fails to translate into a sustained price rally at the index level. Therefore, while the internal recovery is positive, traders should remain vigilant for a potential failure and breakdown from this bear flag pattern.

Week-by-Week Breakdown

Week 1: End of Day - 06 June 2025

• Bullish: 54 stocks (Overbought: 7, High Bullish: 12, Strong: 35)

• Bearish: 11 stocks (Weak: 11)

• Neutral: 40 stocks

Analysis: The month began in a state of robust health. The number of bullishly trending stocks (54) vastly outnumbered the bearish ones (11). This represented a strong, broad, and healthy market uptrend with widespread participation.

Week 2: End of Day - 13 June 2025

• Bullish: 16 stocks (Overbought: 3, High Bullish: 3, Strong: 10)

• Bearish: 57 stocks (Weak: 43, High Bearish: 10, Oversold: 4)

• Neutral: 18 stocks

Analysis: This week marked a significant and sharp deterioration in market health. The number of bullish stocks collapsed from 54 to just 16, while bearish stocks surged from 11 to 57. This indicates a severe market pullback where sellers took firm control and breadth narrowed dramatically.

Week 3: End of Day - 20 June 2025

• Bullish: 26 stocks (Overbought: 3, High Bullish: 4, Strong: 19)

• Bearish: 37 stocks (Weak: 30, High Bearish: 6, Oversold: 1)

• Neutral: 42 stocks

Analysis: The market began to stabilize and find its footing. While the number of bearish stocks remained high, the "Oversold" and "High Bearish" categories started to shrink. More importantly, the number of "Neutral" stocks jumped from 18 to 42, signaling an end to the aggressive selling and the beginning of a bottoming process.

Week 4: End of Day - 27 June 2025

• Bullish: 35 stocks (Overbought: 2, High Bullish: 7, Strong: 26)

• Bearish: 20 stocks (Weak: 17, High Bearish: 3)

• Neutral: 49 stocks

Analysis: This week confirms a significant improvement in market health, with the key development being the rotation out of "Weak" and into "Neutral" and "Strong" categories. The number of bearish stocks has been dramatically reduced from 37 to 20, while the number of Neutral stocks has swelled to 49. This is a constructive sign that the selling pressure has abated and the market is building a strong base.

Lester Davids

Senior Investment Analyst: Unum Capital