Another Milestone For Market Internals

Steve Strazza
February 12, 2021

From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts

As JC pointed out the other day, this week we saw the most amount of new 52-week highs in the history of the Nasdaq.

That's right. The highest reading ever. That's bullish.

We've also witnessed another very encouraging development in market internals of late.

Let's talk about it...

We often use January 2018 as a date from which to anchor different statistics or performance metrics. Why do we do this?

This date is significant because it is when risk peaked for global markets. If you take a look back through many of the Major Stock Market Averages, Indexes, and Sectors, you'll notice many of them battled for several years to reclaim their highs from early 2018.

So, no matter how much you think the market is "over-extended", the reality is that just a few short weeks ago, the majority of stocks were still trading below their January 2018 highs.

Well, that recently changed.

The chart below shows the percentage of stocks in the Russell 3000 that are trading above those key highs from just over 3-years ago.

Look at the divergence between the indicator and price itself when risk-assets peaked in early 2018. And then again ahead of the COVID crash last year...

In both scenarios, as the index was making higher highs, beneath the surface, the percent of stocks above their 2018 highs was falling, signaling deteriorating breadth and flashing a major caution sign just ahead of these selloffs.

Now let's fast forward to today and contrast what we're seeing with those two prior periods.

For the first time, not only are the majority of stocks back above their early 2018 highs (note the reading above 50%), but there are no potential divergences this time either. Instead, we're seeing this indicator continue to grind higher and confirm the new highs in stocks.

I think instead of focusing our attention on a few high-flying names which make the entire market appear frothy, we're better-served focusing on the other half, or what is roughly 1200 stocks in the Russell 3000 (not to mention stocks all around the World) that are yet to break above their 2018 highs.

From our view, the market appears to have plenty more kindling to keep stoking this fire.

The bottom line is breadth continues to give us bullish signals as each new data point seems to support/confirm the new highs we're seeing in the stock market.

In other words... Party on bulls.

As always, let us know what you think!

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Allstarcharts Team

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