New highs losing momentum

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One of the indicators that can be used to measure a market’s momentum is to see how many shares are making new 52-week highs.

The graphs below show the net 52-week highs of shares in all the main sectors of the JSE. These highs are calculated by adding all the shares in the respective indices that are making new 52-week highs, and then deducting the number of shares making new 52-week lows. The number is then shown as a percentage of the total number of shares in the specific index.

The graphs show a good overall cyclical trend of the specific market or sector being analysed. The net 52-week graphs usually hit lows and highs before the indices. Overall increasing tops are positive and decreasing tops are negative, with below zero indicating a very negative market.

All the indices appear to have hit their respective highs in early March and are now showing declining tops. This indicates that the market could be due for a period of sideways or downward movement. All the main sectors are showing a negative trend.

Source: Plexus Asset Management (based on data by I-Net Bridge)

Source: Plexus Asset Management (based on data by I-Net Bridge)

Source: Plexus Asset Management (based on data by I-Net Bridge)

Although the number of net 52-week highs for the FTSE/JSE Resources Index has dipped below zero, this is not a very reliable indicator as there are very few shares in this index.

Source: Plexus Asset Management (based on data from I-Net Bridge)

In short: with more and more short-term indicators turning negative, this is not the time to be overweight in equities. However, with the longer-term trend still positive, don’t try to be too clever by going too far underweight against your benchmark.

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