Skip to main content

Why You Should Care About the New-Highs List

And why is it looking so sad?

The Market

Greece finally got a deal. Or shall we say what really happened? Greece finally kicked the can down the road. If this was not your expectation, then you have not been following this story for the last five years. But such a spurt upward produced some fascinating statistics, as you can imagine.

First, let's keep in mind that the Nasdaq Momentum Indicator gets maximum overbought at the end of trading on Monday. I went through that exercise last week, where I plugged in "what-ifs" to see when the indicator would stop going up while the price continued marching higher, and that day was Monday.

Now, thanks to Nasdaq's surge in price on Friday, we can draw in this resistance line. These lines have tended to be good short-term stopping or breathing points, as you can see on the chart.

Image placeholder title

As I am sure you saw, the Russell 2000 lagged considerably, which in turn means there were other issues with the day's rally. Volume was pathetic, although I do not necessarily consider that a negative since it seems in this market that the lower the volume, the less bearish it is. But the number of stocks making new highs is really getting sad. Last Friday there were 203 new highs on the NYSE while Friday's surge brought 179. Over on Nasdaq last Friday there were 136 new highs and this past Friday there were 127 new highs. Keep in mind that Nasdaq is now 60 points higher than it was a week ago.

Let me reiterate why we care about the number of stocks making new highs. In the simplest of explanations, if you owned a stock on the new-highs list a week ago the chances of it still being on the new-highs list today have gone down not up. Expansions in an up market are good; contractions are not. Your stocks are not keeping up with the indices. The index is like the general in a war, he leads the troops. If the troops (the individual stocks) are not following the general, then who is going to fight the battle?

As far as sentiment goes, the Fear and Greed Index is now at 80. That's extreme. Sure, it can get more extreme, but this is now the highest level we have seen it since before the October swoon. We've reviewed the Investors Intelligence readings, which show four times as many bulls as bears. We've reviewed the American Association of Individual Investors, which now show as few as 17% bears, the fewest since early November.

To this I can now add the one-day reading of the total put/call ratio slipped to 79%. The Equity Ratio did not slip into the 40s; however, the ETF put/call ratio slipped below 100%. In the past six months there has been only one other time that the put/call ratio for ETFs was below 100% and the total put/call ratio in the 70s without the Equity falling below 50%. That was Dec. 26, and the market rolled over shortly thereafter.

I must say that I don't think the market will roll over nearly as easily this time as it did then. The 30-day moving average of the advance/decline line remains far from overbought. The McClellan Summation Index, while not as robust as it ought to be at this point is still pointing higher as well. In addition, the moving average lines of the put/call ratios are still heading down.

I believe we should get a hiccup this week on the downside for all the reasons listed above, as well as the fact that Fed Chair Janet Yellen will give her semi-annual testimony to Congress on Tuesday and Wednesday. Typically, some comment comes out that gives the market a pause. Unless the intermediate-term indicators roll back over, I would expect another rally after the pullback.

New Ideas

We have discussed Energy Select Sector SPDR ETF (XLE) several times in recent weeks and months. For now, it is holding above that line I drew. My sense is it may hold a while longer, but if it can't rally soon, it is going to break down again. In other words, there are two parts to the equation: holding over support and rallying. If it does the former but not the latter, then that is not bullish. If you are long, respect a stop below that line (currently $79).

Image placeholder title

Today's Indicator

The Hi-Lo Indicator is stagnant. The New Highs are discussed above.

Image placeholder title

Q&A

Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice.

Email Helene here.

HCP (HCP) had quite a slide and it looks like so many utility charts (probably due to the big yield). The best news is that it bounced off a support line but I don't think it is going to get much farther than that downtrend line at $45. If it is going to be okay again, it is likely to spend time building a base or at least retesting that spike low.

Image placeholder title

Goldman Sachs (GS) has a decent chance at getting back to resistance at the downtrend line I drew in (around $195), especially if it can cross that thin resistance line at near $192. I would be careful trading this into Yellen's testimony Tuesday because if she says anything that appears dovish for bonds, the financials would likely go the other way.

Image placeholder title

I have liked Wynn (WYNN) and Las Vegas Sands (LVS) for a while and it appears to me as if WYNN continues to push up against that rising channel line. I have given a target of $165 and I will stick with that level for now.

Image placeholder title
Dow is the Most Vulnerable to Profit Taking

Dow is the Most Vulnerable to Profit Taking

Despite the newfound focus on the Dow Jones Industrial Average last week, it turns out we may be seeing the last gasp of outperformance here.

How Hungry Is This Market?

How Hungry Is This Market?

Here's what I'd like to see happen with this rally -- I'd like it to show some FAANGs. Here's why -- and a look at Microsoft's chart, news highs and more.

Sloppy With a Chance of Rallying

Sloppy With a Chance of Rallying

Here's why I see another rally before the weekend, even amid the messiness, and a bump for Amazon.

Sloppy With a Chance of Rallying

We Can Rally Just a Bit More

Energy stocks have a lot of complacency in them.