Now I know this stuff doesn't matter until it does and I know all
those trend followers out there who "just follow price" ignore this kind
of thing, but the differential of NYSE new highs minus new lows has not only
failed to keep pace with price but it is now breaking down.
Figure 1 is a daily chart of the S&P Depository Receipts (symbol: SPY).
The indicator in the lower panel is the simple 5 day moving average of NYSE
new highs minus NYSE new lows. Typically, this indicator tracks price swings
fairly well and you can see that in figure 2 (below), where I have overlaid
the indicator on the price chart. Two things are noteworthy regarding this
indicator. First, it peaked on November 5, 2010 and it has failed to keep up
with price since that time. This is the "dreaded" negative divergence, but
of course, it won't mean anything until it does. Second, the indicator (as
of yesterday) is now breaking down out of its range and this should mean lower
prices.
Figure 1. SPY/ daily
Most measures of market health are not keeping pace with price. At the very
least, these divergences should slow the market's rise. Whether the market
will be "allowed" to correct is another question.
Disclaimer: Guy M. Lerner is the editor and founder
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