By Simon Maierhofer
In a recent period of almost two weeks, the S&P 500 Index reached new all-time highs on four of eight trading days.
But on six of those eight days, more stocks declined than advanced (see chart below).
Can the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.64% , Nasdaq /zigman2/quotes/210598365/realtime COMP +0.52% and Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.39% continue higher despite this kind of internal weakness?
The chart below helps us identify other times the S&P 500 reached new all-time highs as less than 50% of NYSE-traded stocks advanced. We will call those “lackluster” days, which are represented by the bottom blue graph.
• There were two of four lackluster days prior to the Sept. 20, 2018, high.
• There were four of nine lackluster days prior to the Jan. 26, 2018, high.
• There were four of eight lackluster days prior to Nov. 8, 2017.
• There were four of eight lackluster days prior to Aug. 7, 2017.
Obviously the first two instances proved to be ominous precursors of worse things to come, but the latter two only saw hiccups.
Just based on those four precedents, one could file this constellation away as a 50/50 scenario. But, like an onion, the more you peel away on the current setup, the more it stinks.
Internal deterioration is widespread. The following indicators failed to confirm last Thursday’s new S&P 500 high, creating a number of bearish divergences:
• Cumulative NY Composite advance/decline lines.