New Highs’ Divergence
We are observing a huge divergence now between the daily number of new 52-week highs on the NYSE and what price indices like the SP500 are doing. In the past, divergences like this have been followed by more significant declines than what we have seen thus far.
Below I put up the weekly number of U.S. stocks making new 52 week highs minus new 52 week lows (US New Highs − New Lows (5-day total, EOD)) versus the S&P 500. It's interesting that there wasn't a divergence before the 2010 flash crash, but clear divergences occurred before the stock market peaked in 2007 and before the 2011 stock market crash. It looks like a legit indicator. It was featured in a StockCharts.com blog post titled "Elder's Weekly New Highs - New Lows":
The index is computed by counting up all of the US stocks (on any of the three major exchanges) that are making new 52-week highs and subtracting all of the US stocks that are making new 52-week lows. That gets you the "Daily" version of this index ($USHL). To get the "Weekly" version, you add up the daily values for the past five days and plot that.
As you can see, this market indicator does a pretty good job on keeping you on the right side of the market. Dr. Elder follows it very closely - now you can too.
Here's the chart. Divergences can last a long time, so it's hard to pinpoint exactly when the market will peak. But with the threat of default this week and tapering coming soon, I think stocks in this mature bull market look risky right now. I've been saying this since April though, when the S&P was at 1,600.