Markets are doing their thing and are walking toward the shining light that they perceive the upcoming Fed meeting to be. $SPX new highs this week, $NDX new highs this week. Looks fantastic.
In spirit of documenting reality let’s keep looking under the hood.
In today’s peek: New highs vs new lows in the Nasdaq. While $NDX powers on to new highs you’d think there would be a visible expansion in new highs versus new lows.
There isn’t. None, flat as a pancake:
I find the chart fascinating as it shows a persistent weakening over the past 2 years. Whereas the rallies leading to new highs in 2017 and 2018 came on expanding new highs versus new lows the rallies into new highs last Fall showed weakening and signaled something amiss. And something was amiss big time as Q4 massacred stocks.
Then came the big jawboning Fed flipping on its back waggling its tail wanting to play fetch with markets rally of 2019. New highs in April and again new highs now in July. Expansion in new highs versus new lows? Not evident, weak all year compared to 2018 and indeed this week’s new highs show the weakest readings yet in this recent cycle.
What’s it mean? Deception basically. The rally is not as strong as the headline index figures on $NDX make it out to be.
Take a look at the weekly longer term chart and the message is clear:
Strong rallies expand on the new highs versus new low front. Weakening rallies show shrinking expansion. Note 2013 was very strong. then new highs in 2014/2015 increasingly became weaker culminating in the August 2015 early 2016 drubbings.
And, as we saw in the summer of 2018, weaker expansion, then the drubbing.
Now we see again the same weakening process. Even weaker than before.Doesn’t mean we roll over today, but this rally construct is deceptively weaker than it appears and that perhaps makes this data set supportive of the eventual VIXplosion argument.
