Believe it or Not Market Breadth Remains Strong Dec 27

Dec 27, 2016: 2:43 PM CST

As we rush into 2017, let’s pause a moment to assess the health of  this strong price rally at the end of 2016.

We know that price and the trend is strong, but what about the “guts” or internals of the market?

Here they are in full bullish glory:

Let’s first take a moment to figure out what we’re seeing.

The top grid is “The Market” via the S&P 500 and the lowest (green) grid is the most important for this post.

It’s the net difference of the “stocks making new highs” and “stocks making new lows” in the index.

You can also look at the second grid which is the raw data of “stocks making new 52-week highs” or the middle (red) grid which logically is the number of stocks making new 52-week lows.

We’re seeing April to December 2016 and it’s clear that internals have been strong and far more stocks achieved fresh new 52-week highs than did new lows – that’s to be expected in a bull market.

Now, we look at “how strong” is the bull market or more specifically what’s the trend of Breadth?

It turns out that the trend in breadth is just as strong as the market itself.

How do we know that?

First, when the blue or green chart is toward the upper end of the range, it means the market is considered healthy because more stocks are making new 52-week highs along with the index itself.

For example, in early December when price rose from 2,200 to 2,280, over 110 stocks in the S&P 500 joined the index at new 52-week highs.

This suggests that stocks in the index are generally uptrending and some of them are even breaking out to new 52-week highs and even new all-time (never before seen!) highs.

When Market Internals – like Breadth above – trend bullishly and make new highs along with the index (as it also trends and makes new highs), we view this as a “confirmation” and thus expect the uptrend (already in motion) to continue.

That’s what we’re seeing now at the end of 2016.

Continue monitoring this picture for any emerging signs of internal weakness (the market making new highs but the bulk of underlying stocks NOT ALSO making new highs).

Until we see this weakness, we’re getting a bullish “all clear ahead” signal from market internals.

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Corey Rosenbloom, CMT

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1 Comment

One Response to “Believe it or Not Market Breadth Remains Strong Dec 27”

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