Un articulo muy interesante de Barry Ritzhold:
1. New 52-Week Highs
2. Market Breadth (Advanced/Decline Line)
3. Capitalization: Small Cap, Mid Cap, Large Cap
4. Percentage of Stocks at 20 percent or greater from their recent highs
New 52-week highs are the earliest indication of a market that might be turning unhealthy. Look for divergences between index-price highs and new 52-week highs. When a major index such as the S&P 500 is making new highs but the number of SPX stocks making 52-week peaks begins declining, that divergence is a significant warning sign. This can warn of an eventual top as much as a year ahead of time.
The next warning signal is the divergences between the advance/decline line and the broader markets. This often turns south six to eight months ahead of major tops. Desmond emphasizes that both the new 52-week highs and advanced/decline line reveal market breadth -- a term that describes how much of the market is participating in the advance. When tops occur, we see extreme selectivity -- fewer and fewer stocks are pulling the market upward.
The third factor is selectivity by market capitalization. Historically, the first group to roll over is the small caps. The bottom 50 percent of the market by cap size will begin to falter first, while the rest of the market appears healthy. The usual time period is eight months prior to a top for the smaller issues to fade. The mid-caps -- the next 35 percent or so of equities -- will falter four to six months before the high. The tendency for big-cap-dominated indices to peak last is a function of their structure. They are market-cap weighted and therefore can be dominated by a handful of mega-caps.
The fourth and last factor worth watching is the percentage of stocks in a bear market. As a rough estimate, any equity down 20 percent from recent highs can be considered in its own bear market. During healthy bull markets, less than 10 percent of stocks are in this condition. As the small caps and mid-caps roll over, this percentage will increase. At the market peak, we typically see one-fifth of stocks in their own bear market.
What does all this mean for the current run? According to Lowry’s, “the weight of evidence continues to suggest a healthy primary uptrend with no end in sight.” For those concerned with a market top, that is rather bullish.
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