Feedback & Follow-Up: A Weekly Historical Look At New Highs - New Lows

New Highs - New Lows Weekly

I wanted to follow-up on my previous chart after I received some feedback. Above is a weekly chart of the SP-500 ($SPX). Below it is the “Weekly New High - New Low Index” popularized by trader and author Dr. Alexander Elder. The “gold” colored peaks represents expanding weekly new highs and the “red” expanding new lows.

The index is computed by counting up all of the US stocks (on any of the three major exchanges) that are making new 52-week highs and subtracting all of the US stocks that are making new 52-week lows.  That gets you the “Daily” version of this index ($USHL).  To get the “Weekly” version, you add up the daily values for the past five days and plot that. - (x)

I have posted this chart previously, but I have updated it with this week’s data (04 September 2010) for today’s post.

Much of the feedback I received went like this: “…the mounting Federal Debt…”, “…high unemployment rate…”, “…banks & housing failing…”, “…out of control Fed money printing…”, “…Europe failing, China tossing our salad, Gold to $5,000, Bond bubble…” and so on. It was all pretty much fundamental economic data building a case for a major top. I respect it all and read the same news.

But I don’t trade it and apparently, neither does anyone else.

Look, I don’t know where price will be tomorrow, next week or next year. Anyone that tells you that they know is full of shit. This chart isn’t about predicting where price is going to go…just where we are today and what today’s data tells us in comparison to previous trends. It’s not alchemy…just simple observation.

We could very well see a massive sell off in September & October that will mark this period as a top. Or, we could very well see new highs expand into the winter holiday season and we end up busting through April’s old high and begin a new leg up.

The problem is, I don’t see either option brewing at the moment. At least not in the underlying daily market shuckin’ and jivin’ which was the basis of my previous chart. The reason why I don’t see this moment as a major turning point is illustrated in the chart above: where’s the panic?

The chart above is only 18-years of data, but look at all the spots where a sustainable price advancement formed (higher or lower). Prior to the advance, there was “panic” selling. Bull market or bear market, price market its spot with panic.

During trends and at bottoms, selling spiked (dotted lines). At the two tops and one bottom (1994-95), there was sustained selling (red arrows) as price consolidated or moved higher. Besides price consolidating, do you see any of that if you look at 2010? I don’t. Even the May “Flash Crash” barely spiked us down. It’s pathetic compared to what the LTCM boys did to us in 1998.

Bulls…where’s the selling spike that lures buyers into at lower prices? Was the spike down in May enough to put us in a new bull move up? Are stocks cheap enough? P/E ratio low enough?

Bears…if the world sucks so bad, why aren’t you selling hard? Why aren’t you short and staying short for more than 3-days? The price data above seems to point to more talk of “doom & gloom” going on then actual bunker building.

Yeah, I know the Fed re-re-re-inflated the market with cash in 2008-09 and that the rally off the March lows was a “fake Fed induced” rally. I know. So what? So was the Greenspan induced rally out of the Dot Com burst. Does that mean we’re more at something like 2005 on that chart than early 1999 or late 2007?

Whether you’re a bull or bear, this market isn’t going anywhere until you get off your ass and panic.