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Mark Hulbert Archives | Email alerts
Feb. 16, 2012, 12:05 a.m. EST
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By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "” Worried about the future of the NBA market "” otherwise known as the "nothing but Apple" market?
You're not alone. Many worry about the overall market's health when more and more of the heavy lifting is being done by just a relatively few stocks like Apple /quotes/zigman/68270/quotes/nls/aapl AAPL -2.31% .
And I fully expected to become worried too as I set out to investigate that concern for this column. But that is not what I found.
Consider first the data. During the week ending Feb. 3, two weeks ago, 16.4% of the issues on the NYSE hit a new 52-week high "” which represents the highest level this percentage has reached over the last six months. Last week, this percentage contracted to 11.7%, even as the Dow Jones Industrial Average /quotes/zigman/627449 DJIA -0.76% was itself hitting a new 52-week high.
That is the contraction that has some commentators worried.
More stocks making new 52-week highs is usually a bullish sign. Should a recent decline worry investors? MarketWatch's Mark Hulbert analyzes the track record of this market indicator. Laura Mandaro reports. Photo: Getty Images.
But now consider what Ned Davis Research found upon trying to correlate the weekly new-high data with bull market peaks. They found that there typically is a long lag time between when the percentage of stocks hitting new weekly highs reaches its peak and when the bull market finally tops out.
In fact, the firm found that in no case over the last five decades did a bull market top out before a peak was reached in the percentage of weekly new highs. And, furthermore, the average lag time between a peak in that percentage and the bull market's top was more than 33 weeks "” nearly eight months.
So even if the percentage of NYSE stocks hitting weekly new highs peaked out at 16.4% earlier this month, the historical data would not warrant an immediate concern that the market was about to keel over dead.
Another way of putting the new-high data into historical context, which is favored by many analysts, comes by comparing the number of new highs to the total number that have reached either new yearly highs or new lows. From this alternate perspective, a lower number of new highs would be alarming only if accompanied by an expanding number of new lows.
But that's not been the case recently, according to Marvin Appel of the Systems & Forecasts advisory service. who calculates a 10-day moving average of a daily ratio of new 52-week highs on the NYSE to the total number reaching new highs or lows.
This moving average currently stands at more than 97%, which Appel rates as solidly in bullish territory.
In fact, Appel says this indicator would have to drop below 80% for it to turn bearish. And because recent readings have been so much higher than that threshold, and because it would take a number of lower daily readings to bring the 10-day moving average down that far, Appel says that a sell signal from this indicator is likely to be several weeks away at the earliest.
The bottom line? There are plenty of things to legitimately worry about right now. But, apparently, the relatively low number of new 52-week highs is not one of them.
Click here to learn more about the Hulbert Financial Digest.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now. Collapse
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