Technical Talk: NYSE – fewer new highs call for caution

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The comments below were provided by Kevin Lane of Fusion IQ.

As seen in the chart the number of net new highs on all U.S. exchanges combined are fewer now (green circle) than when the indices made their previous highs back in early November (red circle). While this alone is not a glaring negative, it does raise some caution as a market moving higher with fewer names participating eventually is not a good condition. It’s akin to having a few people fall off the end of your team’s rope in a tug of war in that at first it may not be a problem but eventually with fewer participants you succumb to exhaustion.

Source: StockCharts.com

That said, what does one do about this difficult situation where on the one hand you see things under the surface of the market getting weaker yet on the other hand you see the market keep moving up? We suggest the following: continue to ride the upward momentum, but trail up your stop losses on open positions and also be extremely judicious in putting new money to work given the market as measured by the S&P 500 is up close to 90% from the 2007 lows.

Given strong seasonal conditions we would expect to see the market gravitate higher to year end, with modest pullbacks along the way.

Source: Kevin Lane, Fusion IQ, December 13, 2010.

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