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Thursday, May 9, 2013

A lot of new highs could be a buying climax

There were over 500 new highs yesterday.  Check out this chart.

That even eclipsed the number at the Sept. high of 483.  We actually have to go back to 2010 to find new highs over 500.  Here is a look at that time period.

New highs crossed 500 on five different occasions in 2010.  It happened twice just before the flash crash.    The only one that was not followed close in time by a significant pullback was the instance marked by the blue arrow.  How do we know if this is a buying climax with a pullback to come very soon?  We do not have a lot of past instances to work with.  However, in the limited data we have there does seem to be a pattern that can help us out.  After the blue arrow the number of new highs did not drop below 200 until seven days later.  Price was higher at that time.  In the Jan. and Nov. instances the new highs dropped below 200 without a new high within four days.  In the April instance new highs stayed above 200 between the two red arrows, but dropped under 200 a couple of days after the second arrow.  After the 483 new highs last Sept. they dropped to 141 the very next day.  That was a pretty good signal in hindsight of the pullback that was to come.  This is the longest rally since a significant pullback in any of these instances.  We have been moving up pretty steady since last Nov.  It might be possible we see a pullback unless they have been outlawed completely, LOL.  I will be watching the numbers for the next few days to see what happens.


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