NASDAQ New Highs | Extreme Stock Market Divergence

nasdaq new highsFriday recap: Equity markets closed out the week with one of the most heavily skewed trading sessions the market has seen in many years.

The DJIA -0.2% and S&P 500 +0.1% were basically unchanged, while NASDAQ made another new high, crossing the 5200 level for the first time, +0.5% to 5210The Russell 2000 declined -0.5% to 1267.

Market Breadth was the striking story beneath the headlines. The NYSE Advance/Decline was negative by nearly 2 to 1; while the NASDAQ adv/decl was negative by 1½ to 1. We also noticed that since May 1, the NYSE weekly adv/decl stats have been negative 9 of 11 weeks.

New 52 week lows have outnumbered 52 week highs nearly every day for the last 3 weeks, and Friday was no exception with 199 new lows vs 76 new highs.

The glaring negative divergence in market breadth in NASDAQ market breadth was picked up on by numerous market website and blogs over the weekend. Clearly there are a maybe a dozen names; we highlighted NFLX and GOOG on Friday, driving the capitalization weighted NASDAQ higher while the full universe of stocks struggles to participate.

Any time market averages make new highs on the strength of fewer and fewer stocks it is symptomatic of a bull market getting long in the tooth.

Most of us learned years ago in stock market 201 that market averages making new highs on continually narrowing leadership is not a good thing.  This is often symptomatic of a Bull Market long in the tooth that has run out of new sectors and stocks to rotate into. We’ll have to watch closely as we work our way through earnings season, whether new market leaders can emerge.

Also, pay particular attention to market breadth should the S&P 500 join NASDAQ in making fresh all time highs.

The Early Line: Eurozone markets are responding positively to the Greek banks beginning to reopen, with the German DAX and French CAC each +1% midway through their trading day. Should stocks hold their gains in the Eurozone it would be their 9th consecutive day of gains.

I don’t have data on their market internals but I’d guess it’s a more impressive set than in the US.

tanderson@mndpartners.com tjanderson56@gmail.com

Twitter: @TJAnderson1

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