Chart of the Day – New Lows Almost Highest in Past Year

by Enis April 16, 2013 11:21 am • Commentary

Each morning, I do a quick health checkup on the market, looking at various internal indicators.  Market indices like the S&P 500 (or even worse, the DJIA) that we’re conditioned to look at are hardly an accurate guide to the total overall health of the stock market.  Since it’s a daily exercise that I’ve done for years, I’m rarely surprised by what I see.

But this morning, one chart quickly snapped me out of my morning haze.  This is the chart of new 52 week lows on U.S. exchanges, courtesy of Bloomberg:

Screen Shot 2013-04-16 at 11.11.02 AM

There were almost as many new 52 week lows made yesterday in the U.S. as there were at the November bottom, when the SPX index was around 1350.  We’re now 200 index points higher, and yesterday’s selloff came from all-time highs in the SPX and DJIA, but the number of stocks making new lows was near the highs of the past year!  Normally, a jump in new lows like that would be concerning, but nothing to shout about.  However, when it happens when the broader indices are only a few percent from all-time highs, it becomes shouting material.

The underlying movements among individual stocks does not speak to a healthy, long-term bull market advance.  Rather, it is suggesting that the high levels of index prices are not an accurate assessment of current stock market strength.  In my experience, basing decisions solely on internal indicators is not wise.  But ignoring them altogether is more foolish still.