Long term breadth divergence is a normal part of rallies within bull markets. There’s nothing bearish about breadth divergences. HOWEVER, long term breadth divergences that have gone too far while accompanied by massive bull market rallies are a bearish sign for stocks.

The NYSE New Highs/Lows Ratio measures the ratio of the # of stocks that are making 52 weeks highs vs. 52 week lows. This ratio has been falling since June 2016 while the S&P has been rallying.

The ratio fell from 23 to 2
The S&P has gone up 38% from June 2016 – present.

Here are the historical cases in which the NYSE New Highs/Lows Ratio fell at least -21 over the past 26 months while the S&P went up at least 35%.

Conclusion

As you can see, the 1987 and 1999 cases feature prominently in this market study (the stock market made a “big correction” in 1987 and a bear market in 2000).

The stock market was generally ok for the next 3-6 months. The stock market still went up for another 3-6 months in the 1987 and 1999 cases.
The stock market’s performance notably dropped off 1 year later.

This supports our case that the S&P 500 will do well going into 2019. 2019 will be a different story.

Click here for more market studies.

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.