Stocks Making New Highs: Early Signs of Market Strength?

I find it helpful to look underneath the market averages to see what individual stocks and sectors are doing.

The top chart (click for greater detail) shows the recent market decline in the S&P 500 (SPY) emini [ES] futures, with a series of lower price highs and lower price lows interspersed with sharp rallies.

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The bottom chart tracks the 40 stocks in my basket that are drawn equally from eight S&P 500 sectors: Materials, Industrials, Consumer Discretionary, Consumer Staples, Energy, Healthcare, Financial, and Technology. I track the five most highly weighted stocks within these eight sectors to provide a balanced picture of large cap stock action across sectors.

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The blue line in the bottom chart is the S&P 500 stock index (SPY); the pink line is the number of stocks in the basket making new 10-day highs minus those making new ten day lows.

Interestingly, Monday -- the day of hitting a new price low for the S&P index -- we had more stocks closing at 10 day highs than at 10 day lows.

Stocks closing at 10-day lows were:

Alcoa Inc. (AA), International Paper Company (IP), Time Warner Inc. (TWX) Schlumberger Limited (SLB), and Occidental Petroleum Corporation (OXY).

Stocks closing at 10-day highs were:

United Parcel Service, Inc. (UPS), The Procter & Gamble Company (PG), Altria Group (MO), The Coca-Cola Company (KO), Johnson & Johnson (JNJ), Bank of America Corporation (BAC), Wells Fargo & Company (WFC), and Verizon Communications Inc. (VZ).

When you see stocks from different sectors closing at fresh highs and fewer closing at new lows on a day where you've made new lows in the overall index, it makes you wonder about how much steam the decline has left.

Let's look at some of those new 10-day closing highs:

PG, MO, KO, JNJ: Defensive names. It makes sense that these might be attractive if there are concerns about economic weakness.

BAC, WFC: Banks. Perhaps we're seeing bargain hunting within this beaten up sector.

You can learn quite a bit beneath the surface of an index.