Seeing a divergence in new
highs
On July 11, nearly 500 stocks made new highs in the NYSE Composite
index. The index closed that day at 7382.
Yesterday it closed at 7564 for a gain of about 2.5% in just over a
month, but the number of stocks making new highs was just 112 on the
day. This number has steadily declined since July 11 even as
the index continued higher. That divergence can be a sign of
the internal market weakening while the index looks as strong as
ever.
Chart provided courtesy of
www.decisionpoint.com
I marked three prior instances when the index was moving higher
while the new highs drifted lower. All led to a market
decline.
Something interesting happened last week. The psychology leg
of the market, which was just on the bearish side (too bullish) made
a move to the bullish side. On a scale of 1 to 6 with 1 being
the best for the market, it went from 4 to 3. Still not great
but getting better. The monetary leg is still a 4 (went from 3
to 4 recently) and is a current problem. The valuation leg is
still a strong 1 and is what will keep the market from any serious
damage. We could still get a decent pullback but that
valuation leg should act as cushion and is the reason why we likely
won't see a repeat of a 2000 to 2002-like bear market.
But the short term risks are still there. I'd like to share an
interesting analogy about the current market and basketball written
yesterday by day trader Cody Willard of realmoney.com.
"So instead, you work to set your team up for a better shot
later. And there's no shot clock on Wall Street, so you can run
Dean Smith's dreaded four-corner offense all you want. Coach
Bliss always screamed, "Don't force it."
The market has been quite choppy lately. It is no surprise that our sentiment survey shows almost a deadlock between the bulls and bears. Here are the results:
For the week of 8/15 - 8/19...
Bullish (up) 39%
Bearish (down) 41%
Neutral 20%
That's all for today.
Currently 100% G fund. Thanks for reading.
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