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Stocks With New 52 Week Lows On The Increase

|Includes: Bank of America Corporation (BAC), C, GS, JPM, WFC

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Bull Market Duration

BofA: Here's Another Sign the Bull Market Is Running Out of Steam By Bloomberg

More worries over market breadth.

A huge chunk of this year's increase in the Standard & Poor's 500-stock index is attributable to just two sectors-retail and health care-according to Bloomberg News.

So-called breadth has long been considered indicative of a bull market's health, with many companies and industries gaining value within a single index considered a sign of robust, upward momentum. With the S&P 500 now exhibiting the tightest sector clustering for an advancing year since at least 2000, there are worries about the aging U.S. bull run in stocks and echoes of historic parallels. Just six tech companies accounted for 55 percent of the S&P 500's gain in the year leading up to the peak of the dot-com bubble, for instance. (Here's the Wall Street Journal with a similar story on the "six stocks that matter" to the Nasdaq Composite currently.)

A new report out of Bank of America Merrill Lynch adds to the market breadth worry, pointing out that more than 40 stocks in the S&P 500 have been hitting new 52-week lows. You can see the trend in the chart below. The upper portion shows the S&P 500, while the bottom portion shows the number of stocks falling to new lows.

SP500 New 52 Week Lows

Stephen Suttmeier, technical analyst at BofA Merrill Lynch, and his team point to 2011 as the basis of their concern. From the report (boldface ours):

The 2011 build-up in new 52-week lows preceded a breakdown from a top in the S&P 500 and a peak to trough decline of 19.4 percent on a daily closing basis (21.6 percent on an intra-day basis) into October 2011. [The] difference is that over 40 stocks in the S&P 500 have hit new 52-week lows now vs. under 20 prior to the August 2011 S&P 500 breakdown, meaning that the setup might be more bearish now than in 2011.

And here's a chart showing the 2011 event:

SP500 New 52 Week Lows Profiting from Trading Stocks that are Going Down in Price

What Is Stock Short Selling?

The selling of a stock equity security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.

Selling a stock short is the opposite of buying a stock long. Short sellers make money if the stock goes down in price. Short selling is an advanced trading strategy with many unique risks and pitfalls. Novice investors are advised to avoid short sales until they are properly educated in doing it.

Short selling has been around ever since the beginning of the stock market. But many people don't think short selling is good for companies and the market. They think its un-patriotic or damaging to the economic health health of companies and the country they are based in. The reality is that stocks go up and they go down for a multitude of reasons. Fair equal treatment to buy or sell short a stock provides liquidity and the best balance of fair value for the price of the stock.

People who don't invest or trade the markets at all, blame short sellers for some of the worst company failures in the world's financial markets. Company executives have accused them of driving down their company's stock prices. Governments have before and still do from time to time, temporarily halted short selling to help markets recover and have strengthened laws against some short selling techniques. Some governments have banned short selling completely. Some governments have even gone as far as proposing and implemeting strong legal actions against short sellers. This has happened throughout history in various countries and industries.

Bill O'Neil the founder of Investor's Business Daily and the CANSLIM stock investing method, wrote about short selling in his book "How To Make Money Selling Stocks Short", and concluded that "few investors really understand how to buy stocks successfully. Even fewer understand when to sell stocks. Virtually no one, including most professionals, knows how to sell short correctly."

The fact is that if done proprerly, the risks of short selling are about the same to the risk of buying long stock positions,.

In the stock options, futures and forex markets buying and selling short is normal practice. Let the free market have its freedom to do what it will. In the long term, all people will benefit much more than letting markets move parabolicly higher creating huge bubbles that end up in price collapses anyway.

Short Sale Process

Selling Stocks Short William O

Short Selling Books