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The number of new 52 week highs is one barometer for the health of a cyclical bull market. According to historical patterns, while the stock market itself can continue to climb higher even when the number of new 52 week highs drops, it eventually succumbs to the inevitable. After all, if the majority of stocks are not leading the charge higher, it doesn’t make any sense for the index to continue to go up indefinitely.
This is a short summary of why I pay attention to this metric. There are few indicators of market tops so we have to take what we can get. While there is considerable lag built into it, this is about as good as the others. A few weeks ago I pointed out the collapse of new 52 week highs both in the NYSE and the NASDAQ markets. While this wasn’t a major red flag, the divergence was rare enough to note and something to keep an eye on.
Since then, the number of new 52 week highs quickly recovered and reached a spike high similar to early January and before that October 2009. So with that, the concern from this early, early warning indicator also recedes. Below are the charts I referred to before. The NYSE 52 week highs:
Although since their recovery to 225 the NASDAQ new 52 week highs has dropped lower (just like the NYSE counter part) the important thing is that we did get a push higher rather than continuing to melt:
Even more impressive the ratio of NASDAQ new highs to new lows also recovered quite nicely - but did not reach a new spike high:
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