We are getting more and more signs that the stock market will face trouble in 2019. Some of these market studies center around breadth.
The stock market’s breadth has been deteriorating recently. Some of this is due to weakness in foreign (non-U.S.) stocks.
Long term breadth divergence is a normal part of rallies within bull markets. There’s nothing bearish about breadth divergences. HOWEVER, long term breadth divergences that have gone too far while accompanied by massive bull market rallies are a bearish sign for stocks.
The NYSE New Highs/Lows Ratio measures the ratio of the # of stocks that are making 52 weeks highs vs. 52 week lows. This ratio has been falling since June 2016 while the S&P has been rallying.
Here are the historical cases in which the NYSE New Highs/Lows Ratio fell at least -21 over the past 26 months while the S&P went up at least 35%.
Conclusion
As you can see, the 1987 and 1999 cases feature prominently in this market study (the stock market made a “big correction” in 1987 and a bear market in 2000).
This supports our case that the S&P 500 will do well going into 2019. 2019 will be a different story.
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