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:
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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