Strange Signals
V-shaped recoveries have become the accepted norm and this has held true through December when once again a swift dip was quickly bought and the indexes returned to new highs. As the recent dip struggles to make a new marginal high, has this tried and true formula begun to run it’s course? It seems odd to me that the one of the signals indicating short term market extremes should trigger while the general indexes are less that 4% from their highs. It seems stranger still that this signal should come when there’s increasing breadth erosion on multiple time frames.
Short term extreme breadth readings typically arise during extended periods where the number of stocks above their 20 period moving average is in the range of 70 or greater. What’s unique about the current situation is that this number is at 37. These extreme readings are typical of frothy periods of exuberance and has been a key signal during the past year for reigning in risk exposure. What we’re witnessing here is exuberance in one particular sector, biotech, while the vast majority of stocks have been lagging.
%Stocks > 20 Period MA
New Highs – New Lows
This is also happening during a period where the number of new highs – new lows over a 1, 3, 6, and 12-month period has expanded to the down side showing net negative across all time frames.
Isolating just the lows it can be clearly seen that there has been sharp acceleration in the number of stocks making lows over a 1, 3, 6, and 12-month time frame all while the indexes are hovering near their highs. This is not typically what one would expect to see
As always it remains to be seen how this plays out but for the time being I’m erring on the side of caution until things firm up or give clearer indication which direction the market intends to go. As of now it’s a sloppy environment to be swing trading in.
Originally from –
See which stocks are being affected by Social Media
