We're Baaaack!
This is a chart of the Dow and S&P running into resistance last year (You can see those epic failures in real time here):
For clues as to whether these will fail or break out, we can look to the leaders, those who have climbed Mount Everest before us to see how they reacted to these levels.
The Nasdaq100 was the first to arrive. Here's how that turned out:
But the Mid-caps and Small-caps are taking their nice sweet time. They are nowhere near last year's highs:
Contrary to popular belief, Small-caps can lag while stocks are going higher. That's perfectly normal as you an see here:
With Large-caps leading the way, let's break it down to the individual sector level to see how they are reacting to last years highs. Just 21 of the 59 Sectors & Industry Groups we follow are positive since September. And only 19 are up since January last year. So let's call it about 1/3 of stocks are up from each of those two important market peaks.
Another important step would be for the New 52-week high list to exceed last summer's highs. We had bearish divergences with fewer stocks hitting new highs as the S&P500 and Dow Jones Industrial Averages broke out in September. Fast forward to today, and a breakout to new all-time highs in these indexes accompanied by a new high, in new 52-week highs, would go a long way to convincing me that this is more than just a retest of overhead supply.
We're seeing mixed messages for sure. I would argue that since Technology and the Nasdaq have been the leaders, and the leaders are making new all-time highs, that the rest will continue to follow. It's when we see failures by the leadership groups, like we did entering Q4, that we want to expect the others to fail too.
We want to keep an eye on what other stocks, sectors and industry groups are doing as they run into similar hurdles. How do they resolve? That's likely how a majority of the rest of them will resolve as well.
- JC
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