Trader’s Narrative

This is a guest post by Wayne Whaley (CTA):

It was recently pointed out by a reader of this blog that we have had several days this year where no stocks made new lows and the reader theorized that this is a very rare and potentially bearish event. Databases vary, but my database has 73 such days since 1970 where no new lows occurred.

If you measure from the initial occurrence of each time period, we can see the trading record of these events:

My personal take is that the occurrence of no new lows in March of 2009 was a very bullish event since it occurred in combination with very strong breadth thrust from the advance-decline line and up/down volume. Tape action that could potentially support the case for higher stocks for sometime. The observance of new lows in August is not as bullish, because the results for no new lows, 5 months after the initial read is mixed with a bullish bias. However, I would be hesitant to view the recent no new low days as a sign the market is overextended, especially given the repeat advance/decline thrust in August.

A more revealing bearish characteristic of the new highs and new lows tape action would be a period of an abnormal number of issues making both new 12 month highs and lows suggesting that the market is no longer trending and potentially confused.

Like other times of inflection in the stock market, we are seeing technical studies and indicators light up like a Christmas tree. So why not throw another couple stats on the pile? Below are the charts of new 52 week lows for the Nasdaq and the NYSE.

Similar to other indicators I’ve mentioned recently, this one spiked to a multi-year high last Tuesday (January 22nd 2008). In fact, you’d have to go back to the market turmoil we saw in 1998 to find a higher number of new lows!

The NYSE graph looks different mainly because a significant portion of the securities traded there are non-common stock but rather bonds, municipal bond funds and structured funds which are sensitive to interest rates. Nevertheless, we can see the same pattern.

As with the weight of all the indicators that I’ve looked at, this one is saying that it is time to look for buying opportunities, rather than selling or selling short.