DecisionPoint

New Highs Contracting Against Higher Prices

 | 

Since late-June, prices have been moving higher, while the number of new 52-week highs has been fading. On the face of it this might be cause for concern; however, there are a couple of things that mitigate this apparent weakness.


First, while new highs have been contracting, there has been no expansion of new 52-week lows. Conveniently, there is an example of a combination of shrinking new highs and expanding new lows during the last three months of 2015, which I have annotated on the chart. This condition eventually led to a correction during January and February of this year. The current absence of new lows makes it less likely that we will see a similar result now.

Another indicator shown on the chart is the Average Price Relative to the 52-Week High/Low, or "Rel-to 52" for short. Rel-to-52 expresses the location of the current price of a stock relative to its 52-week high and low. If price is at the 52-week high, the Rel-to-52 would be 100, or if price were at the 52-week low, the Rel-to-52 would be zero (0). The chart expresses the average Rel-to-52 for all the stocks in the S&P 500. The current reading of 73 is a healthy number, but more important is the fact that the index has been rising along with price. So, while fewer stocks are making 52-week highs, the majority of stocks are holding their ground or gaining strength. (Note that the Rel-to-52 was in a declining trend preceding the January-February correction.) 

CONCLUSION:  The contraction of new 52-week highs during July and August may lead to a price pullback in the short-term, but the absence of new 52-week lows during the same period implies that a serious price correction is not likely. Another positive bit of evidence provided by the Rel-to-52 indicator is the fact that, as a group, stocks in the S&P 500 are moving higher within their 52-week high/low range. This confirms the existence of broad-based strength in the market and implies that the issue of fading new highs is short-term in nature.


Technical analysis is a windsock, not a crystal ball.

Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
Subscribe to DecisionPoint to be notified whenever a new post is added to this blog!
comments powered by Disqus