New Highs Dipping Below New Lows Takes A Feather Away From The Bulls And Leaves August Volatility Probing The Market's Vulnerabilities

Key Takeaway: New highs have outnumbered new lows for six weeks in a row (and 8 of the last 9) but the lack of expansion in the new high list has left an opening for non-bull market behavior to return.

More Context: Extreme readings in either new highs or new lows generate plenty of attention, but it is the relationship between new highs and new lows that has proven to be more pivotal. New highs exceeding new lows is characteristic of bull markets. The opposite is typical in more challenging environments.

It has been encouraging see a new high list that is consistently longer than the new low list in recent weeks. But the lack of expansion in the number of stocks making new highs leaves the new high vs new low relationship vulnerable to reversal. New lows have outnumbered new highs every day this week. That is likely to be evident in the weekly data and is also leading to a downturn in our net new high trend line. Seasonal volatility can be just be a hiccup for the market, but in this case it appears to be exposing a vulnerability and could lead to further cracks in the market's bullish façade.