Some Stats from the Bullish Action

By on November 8, 2010

It’s no secret that the equity market has been screaming to the upside. Mike Santoli of Barron’s points out how we’re getting into nosebleed territory historically (at least short term):

Another bout of European fiscal and banking fears could drive a bounce in the dollar versus the euro. Equities here could withstand a rising dollar if it were for the “right” reasons—stronger economic growth—but if it were a reflexive risk-aversion response, it’s hard to see how equities would absorb it with aplomb.
It’s just an educated gut feel, not a prediction. But when a market is ahead nearly 16% without so much as a 2% reversal, with the Wilshire 5000 index having recorded 10 straight-up weeks for the first time since late 1992 (the record streak is 12 weeks, in 1985), it wouldn’t take too much to cause the market to take a breather, or worse, to relieve some of that sense that it really is that easy.

Babak, at Trader’s Narrative, highlights the number of new highs being achieved in a recent post, but doesn’t see danger in these numbers yet given the relation between the number of new highs and new lows:

On the Nasdaq there were 12.5 times as many new 52 week highs as lows. That may seem like a lot but in January and April 2010 this indicator spiked to 100+. The last time we saw this many stocks making new 52-week highs was in April 2010:

Obviously we do need to see 52 week highs in order to have a bull market. Having said that, spikes that produce an exaggerated number of new highs usually indicates an exhaustion (top). But relative to the number of new lows, the new highs are still not at critical levels.

“Chart of the Day” puts the rally in historical perspective with the following chart showing the rally off the bottom thus far is below average in magnitude and duration. A typical election cycle rally should put it closer to the average.

Sources: Barron’s, Trader’s Narrative, Chart of the Day

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