An interesting, long term perspective chart relative to the Bull market …
We have had a nice Bull market run so far, but one thing is noticeable on today’s chart.
Today’s chart show’s the NYSE’s Daily New Highs. In a way, the number of “New Highs” is a reflection of the degree to which investors are chasing stocks.
In a Bull market, investors get caught up in the euphoria of a rising market and engage in a process where they buy at a higher price … only to have “price chasers” come in behind them and bid higher.
When that happens, the number of daily “New Highs” continues to go up, up, and up. Eventually, a point is reached where the market and its underlying stocks are over priced. When that happens, the “New Highs” reverses its process and the number of daily “New Highs” become less and less as the “price chasers” get burned and pull back.
When you look at today’s New Highs chart, you can see that the same phenomena is going on as the previous three events, but at a different and more controlled pace.
If you look at the three previous “New Highs” up moves, you can see they moved up quickly and then fell even quicker. The current (2010-2011) pattern is quite different, and yet similar.
It is different, in that the New Highs climbed very steadily and slowly compared to the previous three times. It is similar, in that we are moving down after the peak was reached last November … although at a slower pace than in the past.
Unless the “New Highs” start a new up trend beyond the chart’s resistance line, the “New Highs” will continue to decelerate in numbers. Such a deceleration would be accompanied by a fatiguing market that would not be able to sustain any additional up movements. At that time, the market would have to fall to where prices were low enough for bargain hunters to come back on the scene and start a new cycle all over again.