More On Market Breadth And NYSE 52Wk Highs And Lows

Here’s the Bear’s Eye View (BEV) for the Dow Jones going back to January 1982, a period of market history that covers the entire August 1982 to August 2017 market advance.  

What’s a BEV plot? It displays the market exactly as Mr Bear sees it. Each new all-time high in the Dow Jones is only a big fat Zero to Mr. Bear.  He’s only interested in how many percentage points he can claw back from the Bulls from each all-time high, and that is exactly what is seen below. All new all-time highs register as 0%. Those daily data points’ not new all-time highs register as a percentage decline from their last all-time high.

Just eyeballing this BEV plot spanning the past thirty-five years of market history; we have to go back to the 1990s to see similar periods where for eighteen months the Dow Jones has seen so little in the way of market corrections greater than 5%.

The bulls must feel pretty good about that. However, looking at the Dow’s BEV plot, we know this isn’t going to last. One of these days the Dow Jones will see a double-digit percentage decline. That would be a 2,211 point decline, or more from the Dow Jones’ current all-time high. What happens then? Does the Dow Jones turn around and go on to new all-time highs, or continue its decline into market history?

Last week I noted the NYSE began producing more 52Wk lows than highs, but it was too early to say if this is a new trend in the market. This week the NYSE continued producing more 52Wk lows than highs, but it’s still too soon to call this a new trend in the market. How will we know if this is a new trend in the stock market? The NYSE 52Wk H-L step sum (Red Plot) has yet to turned down in the chart below, until it does I’m not going to make that call.

So as of the close of this week, I’m still assuming the path of least resistance for the Dow Jones continues to be up. But it won’t take much for me to jump off that train should we begin seeing frequent days of extreme market breadth and volatility in the coming weeks (see last week’s article).

Back to NYSE’s 52Wk High & Lows; the thing to notice is before last week, even on Dow Jones’ down days, the NYSE was producing more 52Wk Highs than Lows, real bull market action. Then after August 8th, the NYSE began producing more 52Wk Lows than Highs even on the days the Dow Jones closed higher. The two columns to the far left in the table below, noting up and down days for the Dow Jones and the NYSE 52Wk H-L nets illustrate this point.

This is not a positive development in the stock market. Should it continue in the weeks to come, it will place a lot of downward pressure on stock market valuations. The thing to watch for now is whether in the days and weeks to come if the Dow Jones responds with a day of extreme volatility (a daily decline of over 2% from a previous day’s close) and / or the NYSE sees a day of extreme market breadth, a 70% A-D down day.

Keep in mind this is a market where the big bulls are the global central banks, whose funding for purchasing stocks and bonds is unlimited. If they want to keep the stock market advancing, they can do it. Their only limiting factor is the credibility of their “monetary policy.”  That’s why it’s so important for them to keep the price of gold and silver under control.  As long as bond yields and interest rates behave themselves, these central banks will control valuations in financial assets and the precious metals markets if they choose to.

We should note how since the January 2000 market top for the high tech issues, the stock market hasn’t operated as it had in decades past. The chart below (two charts down) for the NYSE Advance – Declining Issues Ratio beautifully displays how something fundamentally had changed in the stock market after the January 2000 top in the High-Tech market.

This plot isn’t an A-D line for the NYSE market breadth data. Using this data as a typical A-D line isn’t realistic as in 1926, there were only about 650 listings in total on the NYSE, and frequently there were days with less than 450 listing trading. It wasn’t until 1937 that the NYSE saw days where over 1,000 issues traded, and today there are over 3,000 companies trading daily at the NYSE.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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