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Market Internals Suggest a Bull Market in Equities

Published 01/09/2012, 03:52 AM
Updated 07/09/2023, 06:31 AM
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A bull market is simply when more stocks are rising than falling and making new highs than lows. We have this condition in US equities.

I am often asked what constitutes a bull market in equities. My response is simply - when more stocks are making new highs than making new lows! It is that simple. Well actually the hard part comes in trying to block out all the noise generated by the press of popular opinion.

If one was to listen just to what the press is telling us then you could be forgiven for thinking that there are more stocks on the NYSE making new lows than new highs, and that there are more declining stocks than advancing. However, this isn't the case, rather the complete opposite is occurring. In fact, the more I look at measures of market internals the more it appears, to me at least, that US equity markets are setting themselves up for a breakout to the upside. Given the non trending action that has occurred since August last year, a breakout to the upside is likely to be significant and last a lot longer than what the average punter would have you believe.

The NYSE Net New Highs Index has been rising since the start of October. If we were in the grip of a "bear" market in equities this should be making new lows by now.Figure - 1
Another way of looking at market internals is to look at the number of stocks trading above their long term (6 month) moving average. The NYSE 200 Day Moving Average Ratio is trading at a multi-week high, suggesting more stocks are rising rather than falling.
Figure - 2

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