Recently, on the Weblog, I noted that the number of stocks making fresh 65 day highs is well below the peaks earlier this year. What I didn't mention is that the number of 65 day lows is higher than we've seen earlier in the bull market. On Thursday, we made a 20 day peak in the number of new 65 day highs at 860; new 65 day lows were 192. The latter is actually in the upper half of values since the bull market began in 2003.
I took a look at what happens the week following a 20 day peak in new 65 day highs (N = 67). Overall, we see an average gain of .13% in SPY, with 40 occasions up, 37 down. When we divide the sample in half based on the number of new lows, however, a pattern stands out. When new lows are few in number, the next five trading days average .31%, with 22 occasions up, 12 down. When new lows are more numerous--as they are now--the next five trading days average -.05% (18 up, 15 down).
A strong market is distinguished not only by the presence of new highs, but also by the absence of new lows. The stickiness of new lows, in addition to waning new highs, moderates expectations following recent strength.