Wednesday, March 17, 2010

A Look at Stock Market Strength: New Highs and Lows

We've been seeing the advance-decline lines specific to the major stock market averages making fresh bull highs over the last two weeks. (The Decision Point site is an excellent source for those data). That in part reflects the relative strength of small cap stocks and the considerable risk appetite of equity traders and investors.

Another set of data that is very useful in gauging market strength comes from the superb Barchart site: the number of stocks across the major indexes that are making new 65-day highs and lows. Above I've charted those data to show the number of stocks making 65-day new highs minus those making new lows on a daily basis.

What we see is that new highs today made a new high, as we closed at yet another bull market peak. That tells us that, so far, the market has been gaining strength on the upside, not losing strength. As a rule, we need to see meaningful deterioration in the new high/low data before markets will show a significant retracement. Though I believe we could see a consolidation here and a pullback in the Demand/Supply numbers, I remain bullish as long as we stay above the March 15th lows that we had so sharply rejected.