Enviado: 29/9/2006 21:25Divergences Abound In The Current Market
Friday September 29, 2:58 pm ET
By TradingMarkets Research
In a recent article, I proposed a simple indicator. Look over the past 20 days and subtract the number of days in which we've made a 20-day low from the number of days in which we've made a 20-day high. There's no question we've been strong on that measure in the S&P 500 Index. We've had no 20-day lows in the past 20 days, and we've had nine highs.
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Ah, but strength does not always bring strength. Since 2004, my research found that market returns are subnormal--and actually negative over the next two weeks--when we've had five or more new 20-day highs than lows. When new low days have outnumbered new highs by five or more over a 20-day period, market returns have been extremely bullish.
But it's not just market strength that has me concerned. I also notice strength in the large cap indices that isn't being matched by strength elsewhere. Consider the following:
1. This week, so far, we've seen a maximum number of 1239 stocks register fresh 20-day highs. The week before we had 1498. The week before that, we hit 1622.
2. The Russell 2000 Index (AMEX:IWM - News) is off its highs from last week and well off its May highs, even as the S&P 500 Index is making fresh bull market highs. Midcap stocks (AMEX:MDY.TO - News) are similarly off their May highs, as is the NASDAQ 100 (AMEX:QQQQ - News).
3. The Energy sector (AMEX:XLE - News) is well off its bull market highs. Also failing to make new 20 day highs recently were the Financial (AMEX:XLF - News), Consumer Staples (AMEX:XLP - News), Healthcare (AMEX:XLV - News), and Semiconductor (AMEX:SMH - News) sectors.
4. Dow Transports (TRAN) and Utilities (UTIL) are both well off their highs.
How broad is the large cap rally? Consider this:
1. On Thursday, only 37 of the S&P 500 stocks made annual new highs. That figure was 46 the day before that and 48 on Tuesday. Just two weeks ago, we had well over 60 new highs among S&P 500 stocks. In March, we had well over 90 new highs.
2. Four Dow Jones Industrial Average stocks out of the 30 made new 52-week highs on Thursday. That was down from six the previous two sessions and down from eight two weeks ago.
3. NASDAQ large caps? Only four of the 100 in the NASDAQ 100 Index made new highs on Thursday, down from six the previous day and nine two weeks ago. In March we had over 15 new highs. (Hats off to the Decision Point site for tracking these numbers).
The bottom line is that a narrowing base of large cap issues, highly weighted in the major indices, are carrying this market higher. As we look from the March-May period to the present period and even within the last few trading sessions, the rise is becoming more selective. Every piece of research I have conducted suggests to me that, on average, intermediate-term market returns are subnormal following such extended narrowing.
Friday September 29, 2:58 pm ET
By TradingMarkets Research
In a recent article, I proposed a simple indicator. Look over the past 20 days and subtract the number of days in which we've made a 20-day low from the number of days in which we've made a 20-day high. There's no question we've been strong on that measure in the S&P 500 Index. We've had no 20-day lows in the past 20 days, and we've had nine highs.
ADVERTISEMENT
Ah, but strength does not always bring strength. Since 2004, my research found that market returns are subnormal--and actually negative over the next two weeks--when we've had five or more new 20-day highs than lows. When new low days have outnumbered new highs by five or more over a 20-day period, market returns have been extremely bullish.
But it's not just market strength that has me concerned. I also notice strength in the large cap indices that isn't being matched by strength elsewhere. Consider the following:
1. This week, so far, we've seen a maximum number of 1239 stocks register fresh 20-day highs. The week before we had 1498. The week before that, we hit 1622.
2. The Russell 2000 Index (AMEX:IWM - News) is off its highs from last week and well off its May highs, even as the S&P 500 Index is making fresh bull market highs. Midcap stocks (AMEX:MDY.TO - News) are similarly off their May highs, as is the NASDAQ 100 (AMEX:QQQQ - News).
3. The Energy sector (AMEX:XLE - News) is well off its bull market highs. Also failing to make new 20 day highs recently were the Financial (AMEX:XLF - News), Consumer Staples (AMEX:XLP - News), Healthcare (AMEX:XLV - News), and Semiconductor (AMEX:SMH - News) sectors.
4. Dow Transports (TRAN) and Utilities (UTIL) are both well off their highs.
How broad is the large cap rally? Consider this:
1. On Thursday, only 37 of the S&P 500 stocks made annual new highs. That figure was 46 the day before that and 48 on Tuesday. Just two weeks ago, we had well over 60 new highs among S&P 500 stocks. In March, we had well over 90 new highs.
2. Four Dow Jones Industrial Average stocks out of the 30 made new 52-week highs on Thursday. That was down from six the previous two sessions and down from eight two weeks ago.
3. NASDAQ large caps? Only four of the 100 in the NASDAQ 100 Index made new highs on Thursday, down from six the previous day and nine two weeks ago. In March we had over 15 new highs. (Hats off to the Decision Point site for tracking these numbers).
The bottom line is that a narrowing base of large cap issues, highly weighted in the major indices, are carrying this market higher. As we look from the March-May period to the present period and even within the last few trading sessions, the rise is becoming more selective. Every piece of research I have conducted suggests to me that, on average, intermediate-term market returns are subnormal following such extended narrowing.