Sunday, December 30, 2007

New Highs and Lows Among the Largest Caps


A click on the chart above will give a larger picture of 10-day new highs minus lows for the basket of 40 stocks that track eight major sectors within the S&P 500 universe. An interesting aspect of the chart is that we have been spending the majority of time since July with new highs outnumbering new lows. We've seen several occasions in which new highs have outnumbered new lows by 20 or more issues, but have not seen new lows outnumber new highs by such a margin.

This observation fits with my advance-decline line findings for the 40 stocks, which recently hit a bull market high. While many sectors have been in an outright bear market and the large cap indexes have been in a wide range through much of 2007, the largest of the large caps (which include many of these 40 issues) have not been in a bear market at all. Indeed, sectors such as Consumer Staples and Energy have remained quite strong, even as Financials and Consumer Discretionary issues have lagged.

I am watching carefully to see if we are peaking at present at lower price highs and with fewer of these mega-cap issues making fresh 10-day highs. If that is the case, I would expect the S&P 500 Index (SPY) to test the lows on this chart. I would also expect weakness to finally catch up to the basket of stocks and begin giving us readings of -20 and below for the new high/low balance. In an upcoming post, I will update technical strength and sector performance within the basket.

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2 comments:

louminn said...

Dr. Brett,
I was wondering how you categorized your 40 stocks within their respective sectors? Do you use GICS, ICB, DJ or a customized version? Also, hows the new book your writing going? Will I be able to get it in 2008? Thanks for your help over the past 2 years.

Brett Steenbarger, Ph.D. said...

Hi LouMinn,

The 40 stocks are simply chosen based on their weighting within the eight sectors. I do hope to finish the book in '08, though publication schedules will determine its appearance in print. Thanks for the interest and happy new year!

Brett