A Market Paradox: Unprecedented Cluster Of New All Time Highs On Negative Volume

By Dana Lyons of J. Lyons Fund Management

Stocks have recently witnessed an unprecedented cluster of new highs occurring on negative volume.

A number of stock bears have pointed to the supposed thin nature of the rally in justifying their skepticism. That is, the rally has been led by a relatively small number of stocks as opposed to broad participation. While we have seen anecdotes of such a condition, we can’t say that we fully subscribe to this concern. Factors such as the NYSE advance-decline line hitting new highs along with the various market cap indices, from small-caps to large-caps, also at new highs undermine the argument, in our view.

We will say that some of our proprietary breadth measures have not supported the recent rally. When such divergences have occurred in the past, stocks have eventually dropped, confirming the signals of our indicators. However, the timing of such a reckoning can be difficult. Outside of that condition, as we said, concerns about breadth have been mainly of an anecdotal nature.

Today’s Chart Of The Day is also best classified in the anecdotal category, though perhaps a little more alarming than some of the recent “warnings” that we’ve seen. It deals with a recent odd spate of new 52-week highs in the S&P 500 on days in which declining volume on the NYSE actually exceeded that of advancing volume. There have actually been 6 such new highs in the past 3 months.

If that doesn’t seem like a big deal, it is actually a record number of such days within a 3-month time period. In fact, it is double the previous record number of 3.

So, how much of a warning sign – if at all – is this recent phenomenon? Going back to 1965, there have been plenty of these occurrences, e.g., the latter 1990?s and 2013 that failed to lead to any negative consequences whatsoever. However, most of those were isolated events. The recent cluster of these days is, again, unprecedented and may signal a bigger warning sign for the stock rally.

Comments

Putrid_Scum timehill Sat, 07/29/2017 - 14:15 Permalink

Information channels saying US banks have begun to purge credit accounts used to buy Bitcoin and/or Gold. Accounts used to buy Gold and Bitcoin are flagged, shut down, and transactions cancelled. Chase and BoA are confirmed, this has already negatively affected Hedgers planning on buying PMs with debt before The Resetwww.beforethecollapse.com/2017/05/23/the-reset/

In reply to by timehill

GUS100CORRINA timehill Sat, 07/29/2017 - 15:11 Permalink

I AGREE that Central Banks are buying stocks along with companies buying back their own stock. But at the same time, both the CBs and COMPANIES are using DEBT to do it.This is a DEATH SPIRAL that ends very, very badly because future obligations are rising to create short term gains. It not a question of whether or not the stock is a good investment, but the mechanics involved in the process of buying stocks are completely BLIND to future consequences of these purchases. If you think that is a good thing, I have some SWAMP LAND in Florida I would like to sell you.IT IS THE END OF THE WORLD AS WE KNOW IT AND I FEEL FINE.https://www.youtube.com/watch?v=JsxavPANO8s

In reply to by timehill

NickyGall Sat, 07/29/2017 - 14:02 Permalink

As shown in this article, the Federal Reserve is growing increasingly concerned about the asset bubbles that it is creating: https://viableopposition.blogspot.ca/2017/07/the-repercussions-of-feder…
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Among the Fed's concerns is the fact that much of the money that it has created has ended up pumping up the stock market.

True Contrarian (not verified) Sat, 07/29/2017 - 14:14 Permalink

A rising price with decreasing volume is a 101 GTFO signal, anyone who ever bought a stock will tell you that. Throw in a tightening Bollinger range and RSI off the chart, yer basically describing a top. Expanding CB balance sheets will keep the melt up going for a while longer. But in the end, the pending adjustment to a normalised situation will at some point be explosive.

LawsofPhysics True Contrarian (not verified) Sat, 07/29/2017 - 14:26 Permalink

In are real market, what you say is true.  However, this not a real market, this is a casino that is fully owned and operated by The Fed.There will be no decline in "value" especially considering what the "market" is priced in.At some point true price discover will return, but not in this "market", it will return to the real world when producers simply cannot service debt or cover input costs.In other words, Global Weimar.Could be a while, better educate your children and grandchildren friend.

In reply to by True Contrarian (not verified)

silverer LawsofPhysics Sat, 07/29/2017 - 14:30 Permalink

Not so long, methinks. The dollar is running out of time, because the Fed can only control the dollar, and the dollar is being replaced more and more each day. Soon, the dollar will be a non-starter for the BRICS. They will use their own currency. They won't give a damn what the Fed does, because they won't be sitting at the table anymore.

In reply to by LawsofPhysics

True Contrarian (not verified) LawsofPhysics Sat, 07/29/2017 - 14:57 Permalink

Yes, as you say, this grand experiment should result in eternally rising markets, in theory. In practise I don't buy their koolaid. One whiff of a fear based correction and it's all over. They can tell us they can control the outcome, how did that work out with their rate rise timetable? Accommodative my ass. My money is on them completely screwing the pooch in the next 2 years max. Can I prove this. No, but it's my posit and I'm positioning accordingly. If i'm wrong, well there's always the cryptos. :)

In reply to by LawsofPhysics

venturen Sat, 07/29/2017 - 14:33 Permalink

inflation is running about 8-10% as they print money and give it to the richest.Walked around NYC yesterday...never seen more building....while seeing stores closing everywhere 

lntr Sat, 07/29/2017 - 14:56 Permalink

This is not as much of a paradox as they want us  think. Mostly hype. The writer here is either really stupid or is counting on the readers here being really stupid. Just read the Shep Wave reports for Monday. This is going to be the week of market change if you look what Shep Wave is saying about the comparison of Industrial and transport indices.

TrainReck Sat, 07/29/2017 - 15:57 Permalink

Overall market volume just increased "above average" after weeks of below average volume. The big institutions are positioning for another RIP higher. We aint going nowhere but up, up, up as long as credit is cheap & interest rates are abnormally low. Big Money knows all is good and they're not the least bit concerned about "when it won't be". When they do pull the plug it'll be a semi falling from the sky.

adr Sat, 07/29/2017 - 18:44 Permalink

2017 definitely feels like the insanity of 1999 and 2007, when the ludicrous became commonplace. We've seen Amazon go from $700 to over $1000 in half a year. A 20+ year old company with a triple digit P/E jump 30%. Absurd? Of course but what else is new. Ethereum, ICOs, etc gain billions in value off nothing. Just momentum chasing fools trying to get rich quick. Worked well for peolle holding Lucent stock in 1999. We even have that clown Al Gore show up again. That should be the major red flag. The dude was running for prez in 1999, An Inconvenient Truth in 2006, and now he's back with the sequel in 2017. Based in the last two financial crisis, Al Gore signifies doom. 

Rebelrebel7 (not verified) Sat, 07/29/2017 - 19:15 Permalink

A warning sign that occurred in 1929-1933 perhaps, when the Federal Reserve raised interest rates in a recession.Never mind reality and pay no attention to the man behind the curtain!!