While the Nasdaq 100 has rebounded sharply the past 2 days, there have actually been more New Lows than New Highs on the exchange both days.
A growing concern among some stock market observers is the supposed thinning out of the rally of late. On the whole, we would not count ourselves among such observers subscribing to that concern – at least not in a serious way. Persistent rotation in leadership has more than made up for any breadth concerns thus far. That said, there is scattered evidence of thinning potentially starting to emerge. One such piece of evidence may be seen in the recent rebound in the NASDAQ following a bumpy month for the tech-laden exchange.
Why do we say that? During Friday’s more than 1% jump in the NASDAQ 100 (NDX), there were actually more new 52-week lows on the NASDAQ exchange than new highs. And while that’s not unheard of, it is unusual to see it occurring with the NDX so close to its own 52-week high, e.g., less than 4% away. Furthermore, we saw a similar situation today, with the NDX rallying another two thirds of a percent, yet with new lows outnumbering new highs again.
This is just the 10th unique occurrence of consecutive days meeting this criteria in the last 20 years.
As the chart indicates, this situation represented a major warning sign in 2007 and 2015. However, after several of the other occurrences, stocks were able to power through the seeming sign of weak participation among the broader market. So is our present case a potentially serious topping signal – or is it likely just a false alarm?
In a premium post at The Lyons Share, we address that question, looking at prior occurrences and their aftermath to come to an informed, quantitatively-backed conclusion. In this case, the conclusion may differ slightly from what is merely observed from the chart.
If you want this “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share. Thanks for reading!
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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.