New Lows Remain Nonexistent

From the desk of Steve Strazza @Sstrazza and Grant Hawkridge @granthawkridge

As markets remain mixed we continue to see lackluster action from some US indexes even as some others make new highs.

Large-Caps recently charged back to fresh all-time highs, but the Small- and Mid-caps are still facing some serious overhead supply.

As always, we’re snooping around our market internals chartbook to see what’s really happening underneath the surface in these areas, and whether internals agree with the price action in these smaller market-cap indexes. And even more importantly, if they support, or disagree with the new highs in Large-Caps.

We'll also answer the question: "Just how bad is the recent deterioration in breadth in some of the weaker indexes?"

We have been getting fewer new highs for a while now, but after such extreme initiation thrusts this isn’t too unordinary, and nothing to cause huge concern.

Although, considering the lack of new highs and messy market environment, we are on the lookout for a change in character in internals that would be a cautionary development… And this would come in the form of an expansion in new lows.

So let’s check in on our percentage of new lows indicators across short and intermediate timeframes, in order to see whether or not participation is expanding to the downside.

It’s important to understand that we expect the 52-week low list to stay pretty quiet as the indexes themselves are currently at or bumping up against their respective record highs.

For now, we think it’s essential to look at the internals on a much shorter-term horizon and as you already know we like to look at the 21-day and 63-day lows for this (representing a month and a quarter, respectively).

While the S&P 500 made a fresh monthly low last week, it's already pressing back to all-time highs today. What a difference a week can make!

Let’s check in on the 21-day lows for all S&P market cap sizes:

Did we get new lows last week across the board?

Yes.

But are these readings showing strong signs of expansion? Should we be worried?

No.

This flare-up in new lows is nothing out of the ordinary...

We saw similar moves in breadth in September and October of last year which only resulted in short-term, normal pullbacks before a resumption of the underlying uptrend. These are just blips on the radar when we look back with hindsight.

And there was definitely not enough weakness under the surface to confirm the new lows at the index level, which was proven this week as the indexes grinded back towards record highs… 

And when we move across to the 63-Day low list, it confirms this message. These indicators are ghost towns. There's nothing going on there...

We would expect to see a notable expansion of lows registered across these timeframes to signify that we are at the beginning of a market decline… And it's just not happening.

Those new lows we saw from last week have already disappeared once again. 

So to be clear, we have NOT seen any red flags in terms of an expansion in new lows across any meaningful timeframes... at least not yet.

BUT if/when we do, we will be right here talking about it, obviously.

Do you agree? Let us know what you think and if you have any questions!

Premium Members, be sure to check out this week’s Breadth Report below.