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Cumulative Breadth & New Highs Skyrocket at Trader’s Narrative

Usually sequels don’t live up to the hype but this may just be an exception. If the $600 billion (soon to be more) QE2 from the Federal Reserve wasn’t clear enough, Bernanke’s Op-ed piece in the Washington Post trumpeted his strategy of inflating asset prices in a “Hail Mary” pass to produce real economic growth.

Wall Street celebrated with an orgy of buying filling green across trading screens. Practically everything was higher - with the exception of the US dollar. Most commodities participated in the rally and gold reached a new high of $1392.

The rally was breathtaking in scope and breadth. The S&P 500 index 1.93% closed higher and the Nasdaq Composite trailed with a 1.46% gain. Advancing issues lead 5:1 on the NYSE and 3:1 on the Nasdaq.

New 52 Week Highs
The number of issues making new 52 week highs spiked across the board. Almost all sectors enjoyed the push higher, including the financial sector. But it has the lowest level of new 52-week highs.

According to Bespoke Investment Group 24.6% of the components in the S&P 500 index closed at a new 52-week high. This is the best showing since April 26th when 33% of them did the same.

On the Nasdaq there were 12.5 times as many new 52 week highs as lows. That may seem like a lot but in January and April 2010 this indicator spiked to 100+. The last time we saw this many stocks making new 52-week highs was in April 2010:

new 52wk highs Nasdaq Noc 2010

Obviously we do need to see 52 week highs in order to have a bull market. Having said that, spikes that produce an exaggerated number of new highs usually indicates an exhaustion (top). But relative to the number of new lows, the new highs are still not at critical levels.

Cumulative Breadth
The rally also pushed the cumulative advance decline breadth for the S&P 500 index above its previous top, reached on April 23rd 2010:

cumulative AD SPX Nov 2010 new high

This confirms the wide participation of individual stocks and sectors in this rally. Based on this, the “average” stock market, rather than the capitalization weighted index is already above the April 2010 high. We can see this as well by looking at the S&P 500 Equal Weighted index which just peeked over its April 26th top (1832.50) by closing at 1833.36 today.

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9 Responses to “Cumulative Breadth & New Highs Skyrocket”  

  1. 1 Tomo

    Wow! That is pretty good news reporting there, just like a real journalist.

    You summarised everything for us perfectly and obviously, I am not after any tips, but I was just wondering how come you leave every single one of your posts open ended with no conclusions or opinions?

    Are you seriously scared of sticking your neck out and making a call on the market, or did you just get burned in the past like a little a bitch, so now a cat got your tongue?

  2. 2 Koni

    Tomo…. you are way out of line buddy. But yeah… what is the authors view on the market?

  3. 3 Babak

    Koni, my crystal ball tells me the short term and intermediate term is up. I’m watching sentiment and especially the OEX put/call options for a reversal.

    As for making previous calls, anyone who believes I don’t make calls and often bold counter trend ones obviously has not been a reader for long. Of course, I’m more wrong than right but if you’d like an example, here’s a recent one for gold bottoming in early August and then again for a top in October.

    Over the years I’ve been impressed again and again by the caliber of my readers (with the exception of very few like the above specimen) so I try to not appear as if I’m talking down to them but share more of my analysis than my take on it. My intention is that this be a catalyst to a more fruitful two-way dialogue where we can all learn and develop as traders, rather than a one way conversation.

  4. 4 Dr Bohica

    Tomo seems frustrated. He needs Babak to hold his hand and lead him to a conclusion because he prefers not to take responsibility for the outcome.

  5. 5 J Reacher

    “. But relative to the number of new lows, the new highs are still not at critical levels.”

    You guys can’t tell his opinion by his language. Go back to school.


  6. 6 Aly S.

    I love you Babak!

    You have a big fan right here!

    Creeps like Tomo can’t add 2 and 2 together so they get frustrated when reading what you write.

  7. 7 Babak

    Thanks guys, appreciate the kind words :)

  8. 8 Juice

    Tomo got owned.

  9. 9 jho

    Just a beginning stock investor, but your articles have been a great help, thank you!

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