Individual stocks are hitting new highs these days, and that bodes well for further market gains.
Just about a year ago almost 40% of stocks listed on the NYSE and Nasdaq hit new 52-week lows. As key market indices continued to hit new highs last week, a net 7% of NYSE and Nasdaq stocks made a new 52-week highs. This is the most in six months.
Ari Wald, Oppenheimer technical analyst, said “That’s very bullish” . “Historically, that’s going to peak ahead of the actual S&P. If that’s making new highs, that’s the kind of broad-based internal breadth that signals a continuing trend …The time to get concerned is when the S&P is making new highs and that’s making less.”
The Dow, S&P 500 and Nasdaq all closed at record highs on Monday. The S&P finished at 3,191 Monday, up by 0.7%, and was just nine points away from its next technical test at 3,200.
Wald said the recent break out of microcaps is a positive sign for the market.
He said, “usually at a meaningful market top, it will be the other way around. Internal conditions will weaken first. The market will start to sell small caps” . “It will get picked up in the benchmark S&P last. You’ll see some narrowing of participation at the top.”
In another bullish sign, advancing issues outpaced losers three-to-one on Monday. The NYSE had 241 new highs and 27 new lows, while the Nasdaq had 342 new highs and 62 new lows. Market volume for the exchanges Monday was 6.4 billion shares, which was above its 50-day average of 5.6 billion shares.
“It’s a very bullish market we have on our hands. It’s getting to be year two of the bull market that started in [December] 2018,” Wald said, noting the second year on average has seen average gains of 11%.
“It’s really a market firing on all cylinders. It’s such a key point here. It’s not just this narrowly focused large cap, growth story. We have Europe pushing to 20-year highs. The Euro Stoxx 600 is pushing to its year 2000 peak,” he said.
Sentiment Trader said the jump in new highs is typically a good longer-term signal for more gains, but in the last two instances, the S&P pulled back over the next one to two months both times.
“When breaking out along with the S&P 500, this led to modestly positive medium-term returns, but the last two instances didn’t amount to much for the bulls, as the S&P pulled back over the next 1-2 months both times. Mostly, this was a good longer-term signal,” Sentiment Trader wrote.