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Market Climbs On Strength Of New 52 Week Highs at Trader’s Narrative





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Lowry Research is continuing to side with the longs as their proprietary indicator measuring demand in the stock market increased (slighly) and their selling pressure index fell (even more) into the end of the year and the beginning of the new year.

One of the key variables that Lowry Research is monitoring to measure the health of this rally is the number of new 52 week highs. They believe that new highs are the “canary in the coal mine” and when they start to fall, the rally will have ended. Right now there is no sign of that as new highs on the Nasdaq are powering ahead, along with the index:

Nasdaq new high 10 d MA Jan 2010
SP500 index 2002 - 2010 compared to new highs

What makes this difficult to parse is that while spikes in new highs do correspond generally to market tops, consistently high levels of new 52 week highs in contrast correspond to powerful momentum thrusts. You can see examples of this in the chart above during late 2003 and early 2006. Since we’ve already seen a spike high in October and now we’ve surpassed that, this is a real possibility.

Astonishingly, today we have unmistakable evidence that sentiment is much too bullish for this sort of thing to happen. After all, we’re seeing the sort of excitement in sentiment surveys (AAII and Investors Intelligence) that we haven’t seen since 1987.

But while this is what retail investors are saying, what they are doing with their money is markedly different. We have yet to get final data for the last week of the year but the main theme has been the exodus of retail investors from equity mutual funds into bonds. It is hard to argue that there is ‘irrational exuberance’ in that light.

Finally, while courting the danger of being merely a tautology, among the most bullish things that a market can do is to simply keep going up.

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3 Responses to “Market Climbs On Strength Of New 52 Week Highs”  

  1. 1 Lowry Support

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    One of the key variables that Lowry Research is monitoring to measure the health of this rally is the number of new 52 week highs. They believe that new highs are the “canary in the coal mine” and when they start to fall, the rally will have ended. Right now there is no sign of that as new highs on the Nasdaq are powering ahead, along with the index:

    We are curious about the above statement as to its accuracy, specifically regarding new 52 week highs. We do not recall making any such statement about new highs being ‘the canary in the coal mine’ and that the rally is ending when the number begins to fall. We would be appreciative if you could enlighten us as to where you found this quote in our work. Given how often we are quoted in your work, we are also curious as to whether you are a subscriber to the Lowry service and, if not, where you are getting your information.
    Lowry Research

  2. 2 Babak

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    First, thanks for stopping by and reading my commentary. I’m a great fan of your firm’s work. From what I recall, this was mentioned by Paul Desmond in an interview back in November of last year. I’ll see if I can locate it.

  3. 3 Bruce Pile

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    The new 52 week high figures are a little skewed coming out of a crash bottom like ‘03 and ‘08 because you get very favorable 1 year comparisons for awhile. It looks like we’re headed for that territory as in ‘03. But the double spike to the market topping zone of 150-200 in the last half of ‘07 looks a little too much like the current double spike for comfort.

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