The 52 Week High List Promises a Sustained Bull Market

The current bull market began as a delicate thing. For months it consisted of badly beaten up stocks bouncing for huge gains and not much else. There was no leadership. The 52 week high list was oddly barren. That’s not the way markets with any promise behave.

Of course we weren’t recovering from just any bear market but a frightful gouging that carved 50% and more out of many stocks. They needed time to heal. With Wednesday’s rally we can finally say that they have.

It wasn’t until the market gapped out of its first major consolidation of the rally on June 1st that 52 week highs first crossed the 100 threshold. At that point the bull market had already gained 44%. We have been around the public markets for a number of years and cannot recall the last time such a massive gain was achieved without leadership.

It wasn’t until September that the market routinely began posting over 200 52 week highs. And only recently did it first post 300.

Why do we focus on this? Because healthy bull markets routinely post at least 500, 600 and more new highs when they are in rally mode. At extreme points in the rally they can achieve far more.

During the last phase of the previous bull market in 2007, 52 week highs numbered 600 and greater at various stages of the rally. This is the optimal sign of market health and of a rally that can be sustained. Notably the last leg of the rally in the early autumn of that year was accompanied by a weakening 52 week high list. By the time the S&P 500 peaked in October of that year the market boasted 700 52 week highs. A few weeks later, when the NASDAQ peaked the S&P 500 was less than 2% off its highs. But the 52 week high list had sunk to just over 400 stocks.

With today’s rally the Dow regained the much ballyhooed 10,000 point level. But far more significant to us is that 52 week highs numbered almost 700.

And along with this surge it should be no surprise to find that the breadth of leadership has expanded. The sinking dollar and fears of nascent inflation have re-enabled the commodity trades. Oil and gold are ascendant and so are stocks in their sectors. While energy stocks, which heretofore have not had a leadership role in the rally, are now the top category of 52 week highs, they have not replaced leadership in retail, software, medical, finance, IT and services, only augmented it.

Traders have doubted this rally since its inception. For bulls this wall of worry is welcome. But the bursting 52 week high list hints that it is far from over.