Despite the August setback, the benchmark large-cap SPX Index remains above its 52-week highs as mega-cap technology stocks recovered from the late-summer downdraft.
The S&P 500 set a new 52-week high on 7/27/23 with an intra-day high of 4,607.07 and 4,537.41 closing basis. Other popular indexes also recorded new 52-week highs, including Dow Jones Industrial Average (INDU – 35,679.13 – 8/1/23), NYSE Composite Index (NYA – 16,458.89 – 7/27/23), the Nasdaq Composite Index (COMPQ – 14,446.55 – 7/19/23), and Nasdaq 100 Index (NDX – 15,932.05 – 7/19/23).
Overall inflation climbed to 3.3% from the previous 3% reading, signaling the Fed's 2% inflation target remains elusive. The fresh economic data today also showed the Personal Consumption Expenditures Price Index (PCE) trend is picking up in July. The report showed consumers continue to spend and are willing to pay higher prices for goods and services. It also suggests companies can continue to charge more for products and services, making it challenging for the Fed to control inflationary.
Understandably, traders remain cautious about the market's year-to-date gains as mega-cap technology names dominate popular indexes. Nonetheless, the ability of SPX, INDU, NYA, COMPQ, and NDX to set new 52-week highs is constructive to the continuation of the primary uptrends.
Why is the 52-week high indicator important?
The theory postulates markets or stocks that closed above the highest level over the past 52 weeks show leadership qualities such as price momentum and relative strength.
The premise is that the 52-week high acts as a resistance zone, preventing the market or stock from moving higher.
However, clearing the hurdle, the rally can progress toward the next resistance, if any.
Establishing new 52-week highs can also signal improving or strengthening market internals, suggesting more stocks are participating in the rally to new 52-week highs. In addition, breaking out above 52-week highs can lead to new supports as the previous breakouts become pivotal supports on pullbacks.
Others theorize a market or a stock that trades near the top of its 52-week range may be vulnerable to profit-taking given the overbought conditions and distance from key supports. Although a breakout to new 52-week highs may signal the start of the next bull rally, the lack of follow-through warns of a bearish condition, indicating a false breakout and possibly a trend reversal.
A new 52-week high and low may be a reliable buy or sell signal for traders or shorter-term investors. However, for buy-and-hold investors, the indicator can be a distraction.
Investors probably fall somewhere in the middle of the two-spectrum. Active traders and tactical investors may rely heavily on the indicator to buy or sell, while passive investors may not care as much.
Most market indexes (i.e., SPX, INDU, NYA, COMPQ, and NDX) have recorded 52-week highs but not all-time highs. Two (2) market indexes (i.e., MID and SML) continue to struggle to clear their respective 52-week highs.
Although stocks have rallied sharply over the past year on backdrops of economic and geopolitical headwinds, bearish sentiments remain widespread.
Will stock market indexes continue to climb the proverbial wall of worry?
Can we expect new all-time highs toward the year and possibly early Next Year?
Enclosed is a chart of popular market indexes. Also attached is a list of large-cap stocks trading at new 52-week highs, suggesting potential relative strength and price momentum leaders.