A High-ly Troubling Breadth Development?

Tyler Durden's picture

Via Dana Lyons' Tumblr,

Despite the averages’ close proximity to 52-week highs, the number of NYSE New Lows has recently surpassed that of New Highs.

Although the major stock averages remain within arm’s length of their highs, an increasing number of red flags has recently been popping up. As members of The Lyons Share are aware, we became increasingly bearish in the short-term during the latter stages of the recent melt up in prices. Our main concern stemmed from the wide array of indices hitting key Fibonacci Extensions of the 2015 and Fall 2016 declines. On top of that, investor sentiment has become uncomfortably bullish. And while sentiment is tricky from a timing standpoint, the exuberant extremes suggested that recent gains may not be sustainable. Lastly, while market breadth had been holding up quite well, some minor red flags had begun to pop up, especially pertaining to volume and small-cap stocks. However, as today’s Chart Of The Day reveals, the level of concern over breadth has now been ratcheted up.

As recently as last week, many market participants were abuzz over the jump in stocks making new 52-week highs. And while we have cautioned that the statistic can be quite noisy, an expansion in new highs is always welcome. However, while the stock averages remain fairly resilient, we have already seen the number of new highs plummet. On the NYSE, for example, new highs have plunged nearly 90% from their peak just a week ago. Furthermore, the number of new lows on the exchange has exceeded the number of new highs over the past three days. This is highly unusual given the averages’ relative close proximity to their 52-week highs.

Specifically, since 1970, the S&P 500 has closed within 1% of its 52-week high on nearly 3000 days. On just 78 of those days, or about 2.5%, did NYSE new lows exceed new highs. Many of those days were clustered together around roughly 27 unique occurrences.



Here is a close up of just the past 20 years:



Not all of the events preceded trouble in the stock market. In fact, nearly half of them to place during the 1999 market melt-up. However, enough of them occurred in the vicinity of significant market tops that the concern appears to be legitimate rather than merely theoretical. Such tops include cyclical peaks in 1972, 2000 and 2007 as well as major intermediate-term tops in 1990, 1998 and 2015.

In aggregate, S&P 500 returns have been subpar following these events. Even when including the dozens of dates during the 1999 rally, median returns are negative through 2 months – and also at 2 years.


This troubling data point does not guarantee imminent trouble for stocks. However, the extended status of the major averages as well as bullish sentiment extremes make this a particularly noteworthy development in the near-term. Additionally, further out, it has historically occurred near enough major tops to give one pause regarding the market’s proximity in its long-term cycle.

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StackShinyStuff's picture

Is that like that Hindenburgh thingy?  You know - that omen?

saveUSsavers's picture

NO, not the same scroll-dn to Hindenburgh, this guy is good , like Walker.




StackShinyStuff's picture

I was being facetious, but that is a pretty cool page - thanks

Oldwood's picture

Why are we looking for divergences when in reality it is the CONvergence of all the stupid shit we have done, that portends our end?

VW Nerd's picture

The beauty of a weighted average is the ability to misrepresent market strength. Most prospective investors would be better served focusing on the A/D ratio and market breadth (volume).  Few do.  Also, since fund managers survive on "churning", they're all about momo investing.  They tend to hate P/E investing and yield considerations.

undercover brother's picture

Not that the author has noticed, but this breadth issue has been going on since May of 2013.  The market has routinely rallied on declining breadth for the last 4 years, without the typical divergence related selloff.   I know this because certain trading models I use that plot price/volume relationships as a component, simply stopped working at that time.  

saveUSsavers's picture

WRONG. http://stockcharts.com/public/1092905

S&P has ROUTINELY dropped 200-300 pts w/ this divergence, it doesn't matter until it does, that's a momo-traders mantra, but get your facts right, at least on # of stocks above 50dma here

innertrader's picture

DON'T MISUNDERSTAND ME, I'm bearish the S&P and have been for the last 700 points!!!  Plus there has ALWAYS been a reason to sell it, ALL THEY WAY UP!  And yes, I am still taking defined risk trades on the short side, but I'd feel better to see reason's to buy it!  Then maybe it would break.

However, several years back, I started focusing on trading commodities again, markets where demand and supply still work, as long as the FEDs stay out of it!  I also like the Live Cattle market best, it's only open 4:35 hrs. per day, almost like it was 45 years ago!  I love it!!!

But yes, I still can't help looking over at the S&P from time to time.... and it generally cost me money.  I don't know what's "real" in the financial markets any longer.  Yes, I'm bullish Trump, but still not bullish the S&P at this time.



Iconoclast421's picture

So basically, in 2 years the market will have lost about 10%. But, generally speaking, there should be no losses over the next year. Gee that tells us something doesnt it?

TheRideNeverEnds's picture

Yea, I'm sure those who sold in 1995 when this happened were sure glad they missed the subsequent gains...