A Lowly New High
The Dow traded at a new high yesterday yet a lot of issues actually hit new lows; similar signals in the past have boded poorly for stocks.
The Dow Jones Industrial Average (DJIA) didn’t quite tag the 20,000 level yesterday, however, it did touch a new all-time high, intra-day. And while it wasn’t able to close at a new high, the temporary touch is not irrelevant. It is especially so when considering the circumstances surrounding the high. We’ve discussed on several occasions the strange dynamic of simultaneously large numbers of New Highs and New Lows. This includes our series on the “Junkie Market”, i.e., too many highs and lows as well as our simplified version of the Hindenburg Omen which we named the “Akron Omen”. We won’t get into the theory behind such circumstance (you can read those prior posts for more color), but for whatever reason, an abundance of New Highs and Lows have generally led to poor stock market performance – especially when occurring near 52-week highs.
In this instance, there were actually A) more than 100 New 52-Week Lows on the NYSE yesterday and, in fact, B) more New Lows than New Highs. This is exceedingly uncommon on a day that the DJIA touches a 52-week high. It is only the 12th such day in history (yes, we should measure the % of Highs and Lows rather than the absolute “100″ number, but that is what we are using for this study).
From a glance at the chart, it is easy to see that the 11 precedents occurred at quite inauspicious moments in the market. Here are the exact dates:
- 8 dates between 12/3/1999-1/3/2000
Lumping the 1999-2000 events together, all 4 prior signals occurred essentially at cyclical, or major intermediate-term market tops (though, while there was little upside, the 2014 instance took several more months to top). From a statistical standpoint, the forward returns in the DJIA were predictably, and consistently, horrible:
Will results be different this time? We don’t know. The internals do seem a bit stronger presently than at most of those prior junctures. Also, the abundance of bond-type funds on the NYSE has not helped the New Low situation as yields have spiked. Although, there has been a substantial number of such issues throughout the entire study period. Plus, yields were spiking in similar fashion in 1999-2000 and 2007.
So time will tell if this new high ends up being the top of the mountain like it has in previous instances.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.