After an initial push down, we bounced higher on Thursday before retracing a bit of the gain late in the day. As a result, we continue to grind higher, but in choppy fashion with fewer stocks displaying positive momentum. My Demand measure from the Trading Psychology Weblog (an index of the number of operating company issues showing superior positive momentum) ended the day at 84; Supply (reflecting the number of issues exhibiting significant downside momentum) was 53. New 20 day highs fell to 1116; new 20 day lows remain stubbornly high at 499. Among the stocks in my large cap basket, 9 now trade in intermediate-term uptrends; 6 in downtrends; and 2 neutral, leaving the Institutional Momentum at a relatively modest +280. On the whole, market rises on waning momentum--and especially with rising new lows--are more easily reversed than market strength that is broad and vigorous.
The pattern of fewer stocks making new highs has been going on for a while now. Among the S&P 500 stocks, we had 92 new 52-week highs in March, 75 in May, and only 27 during today's trade. The pattern is the same among the S&P 600 small caps: 100 new highs in April, 80 in May, and only 24 on Thursday. Markets lose strength before they gain weakness; until this pattern changes, I view the action since March as part of a broad topping process, with May as a candidate high for the bull market.