Enis’s Macro Wrap – New Highs – New Lows Anemic

by Enis December 7, 2012 7:54 am • Commentary

Broader trends in the market often get lost in much of the day to day noise.  We become too focused on the next 20 SPX points to notice the underlying changes in market internals.  Hard to see the forest for the trees, so to speak.

One indicator that we follow relatively closely has been flashing a warning signal for more than a year now.  It measures the number of stocks making new 52 week highs on the NYSE minus the number of stocks making new 52 week lows.  Here is the chart since the start of the bull market in March 2009:



From March 2009 to July 2011, the bull market showed very strong breadth readings, as many more stocks consistently made new highs, only briefly interrupted by the flash crash in May 2010.  These strong readings off bear market lows are not a huge surprise, but the real story here is how the market internals have acted since Oct 2011’s low near 1100 in the SPX index.  In that time, the SPX index has had an aggressive 30% rally, but judging from the breadth readings, you might guess that the market is up 5-10% in that period.

In contrast, the market rallied 30% from its mid-2010 lows to its spring 2011 highs, and breadth showed the strength you would expect in a bull market.

In other words, this bull market has been running on borrowed time for more than a year.  Add to the weak breadth the weakness of the technology sector over the past 6 months signals, and I anticipate that a broader cyclical turn is upon us.

Markets overnight:

  • Asia was mixed, with the Shanghai up 2%, and all other markets on both sides of flat
  • Europe opened green, but has turned red on weak German industrial production, a downgrading of German economic growth by the Bundesbank, and comments from the ECB governing council that some members wanted a rate cut from 0.75%.
  • SPX futures in a tight range 6 point range, now down 0.2%
  • The dollar is especially strong vs. the Euro, which has broken its 50 day ma.  Treasury bonds are slightly higher, and commodities a touch weaker.
  • Payrolls at 8:30 am EST