More New Lows Than Highs Signal Market Correction

Michael James McDonald 9.9K Followers Follow Summary The S&P 500 is near all-time highs, yet more stocks are hitting 52-week lows than highs, signaling internal market weakness. Historical analysis of the new high new low index reveals that sustained divergence often precedes significant market corrections, though it cannot predict timing or magnitude. Current divergence suggests the market is 'internally tired' and vulnerable to a correction if triggered by external events or investor fears. I maintain a forecast for the rally to continue until November but recognize elevated risk for an outsized correction should negative catalysts emerge. LdF/iStock via Getty Images Yesterday saw 267 stocks register new 52-week lows while only 84 stocks made new highs. This with the S&P 500 is just 2% below all-time highs. What does this mean? Since Charles Dow’s theory was established in 1900, almost every method This article was written by Michael James McDonald 9.9K Followers Follow Michael James McDonald is a stock market forecaster, author and former Senior Vice President of Investments at a company that was purchased by Morgan Stanley. He is a long-term advocate of the theory of contrary opinion and the measurement of investor sentiment when forecasting price direction.His first book, " A Strategic Guide to the Coming Roller Coaster Market" was published in July of 2000, three months before the top of the dot comm market. On its cover was written, "How a new model of the stock market predicts the end of the 18-year bull market (1982-2000) and the beginning of a new era." The "new era" was to be a long-term (roller coaster) trading range market, which did materialize between 2000 and 2009.A second book titled, "Predict Market Swings With Technical Analysis" was published by Wiley and Sons in 2002.Then, on August 31st, 2010, in a Seeking Alpha article titled: "The 10 Year Trading Range Is Over - The 'Final Stampede' Has Begun", he called an end to the ten year trading range market and the start of another long-term bull market, which also came about.He says, "It’s long been observed that 50% or more of a stock’s price can be driven by the emotions of fear and greed alone. A universal warning sign is when 'too many' investors expect the same thing. When 'too many' investors expect a stock to go up, it generally goes down - and vice versa. The key is having metrics that measure when 'too many' investors are expecting something. This is what the Sentiment king has developed over the years."Through his company the Sentiment King, he continues to study and measure investor psychology in an effort to successfully forecast major stock trends - and help others see them too. Analyst’s Disclosure: I/we have a beneficial long position in the shares of QQQ either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.