An expansion in 52-week highs bodes well for stocks

Key points:

• The 10-day average of NYSE 52-week highs as a percentage of highs and lows exceeded 90%
• When the average exceeds a high level like now, stocks tend to rise
• NYSE 52-week high as a % of total issues exceeded 6% and closed at the highest level in a year
• After similar expansions in 52-week highs, the S&P 500 had a consistent upward bias

52-week highs typically outnumber 52-week lows in bull markets

Market breadth indicators continue to recover no matter where you look. The NYSE, which contains stocks and bond proxies, has seen a pickup in 52-week highs relative to new lows and total issues traded.

For the first time in 18 months, the 10-day moving average for NYSE 52-week highs as a percentage of highs and lows exceeded 90%. The resurgence in new highs relative to lows occurred after the average fell below 10%. 

Similar reversals in new highs relative to new lows preceded bullish outcomes

When the 10-day average of NYSE 52-week highs as a percentage of highs and lows exceeds 90%, the S&P 500 showed excellent returns over the next six and twelve months since 1942, with a few notable exceptions. Before 1942, the signal mainly struggled in the 1937-42 period.

If we measure NYSE 52-week highs as a percentage of total issues, new highs exceeded 6% last Thursday. While not exceptionally high relative to what you typically find in bull markets, the rate expanded above the highest level in over a year. An expansion in new highs has to start somewhere.  

When the percentage of 52-week highs as a percentage of total issues surpasses 6%, and the ratio exceeds the highest level in a year, the S&P 500 consistently rises over the long term, with notable exceptions again occurring in the 1973-74 and 2000-02 bear markets. 

The recovery in long-term uptrends continues to gather steam

In December 2022, I highlighted the reversal in the number of NYSE common stocks trading above their 200-day average. Since that note, the percentage has continued to climb, with more than two-thirds of issues closing above their long-term average. 

While readings above 65% are bullish for the S&P 500, when I drill down further to assess the outlook based on a decile cross, the current reading of 69% bodes well for stocks, with one of the highest annualized returns. 

What the research tells us...

An expansion in NYSE 52-week highs is a bullish development for stocks, as it is typically found in uptrends, not downtrends. With more new highs than at any point in the last year and an increasing number of common stocks transitioning to long-term uptrends, the notable change in character for the market looks encouraging.