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However, the internals and price structure on a longer-term basis are still solid enough that, if historical tendencies hold true, stocks should be able to withstand the shorter-term weakness and eventually put together at least one more decent push to the upside in the longer-term. That is, in the near-term, the market has gotten well ahead of itself and may be due for a breather. That fits with many of the studies and observances we’ve noted recently. However, it also suggests a high degree of risk in the near to intermediate-term. That suggests that this data point may not be the long-term death knell that it has been on several occasions in the past. The bad news is that the short to intermediate-term returns were actually weaker, and consistently weaker.
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That’s due to the 20 events being weeded out in order to get a sample that is more like our current episode. The good news is that, as you can see, the long-term results were not disastrous as on the above table. And thus, the subsequent performance, in aggregate, has been poor. We don’t really know (or care) why these conditions have often occurred near tops - just that that they do. Our guess is that perhaps there are a number of stocks below the surface that are breaking down – yet enough that are still performing well to mask that weakness and prevent market participants from getting too bearish. Why is that? We don’t have a concrete answer. Many historical occurrences have taken place near key tops, either on a cyclical or intermediate-term basis. A peek at the proximity of occurrences on the chart above would indicate why. We have found the same to be true with respect to our “Junkie Markets” - usually. As the ominous sounding names would imply, the historical stock market performance following such signals has been poor. The presence of highs levels of new highs and new lows represents a key component of some notorious market warning signals like the Hindenburg Omen.
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To put that into perspective, that was just the 5th time in the history of our data back to 1970 that saw both series reach that level.Īnd as the following chart indicates, there have now been just 15 days since 1970 that saw both new highs and new lows hit even as high as 5%. On a percentage basis, they each accounted for at least 7% of all issues traded on the NYSE. Specifically, both NYSE new highs and new lows came in at over 200 yesterday for just the 7th time ever. One such development was the sudden profusion of both new 52-week highs and 52-week lows on the NYSE - a condition we’ve termed a “Junkie Market” in the past, i.e., lots of highs and lows. And along with the moderate losses came some interesting developments related to the stock market and its associated statistics. Yesterday saw a profusion of both new highs AND new lows on the NYSE - a condition that has often preceded poor stock market performance in the past.Īfter a smooth, one-way ride higher to begin 2018, stocks finally hit a speed bump yesterday.