Despite the July to Oct 2023 setback, the benchmark large-cap SPX Index threatens to surpass its 52-week highs established on 4,607.07 (7/27/23) as mega-cap technology and growth stocks recovered from the late-summer to fall decline.
The July 2023 yearly high of 4,607.07 and the recent 12/1/23 high of 4,499.39 represent pivotal resistances. A breakout above 4,607.07 suggests 530.29 points or an SPX target at 5,110. Other popular indexes also recorded new 52-week highs, including the 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), Nasdaq 100 Index (NDX – 15,932.05 – 7/19/23), and Mid-Cap 400 Index (MID – 2,743.01 – 7/27/23).
Understandably, investors remain defensive given the geopolitical and macroeconomic uncertainties. Nonetheless, the ability of SPX, INDU, NYA, COMPQ, and NDX to set new 52-week highs is constructive for the continuation of their 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, after clearing the hurdle, the rally can progress toward the next resistance, if any.
Establishing new 52-week highs can also signal improving/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 top and 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 also 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, NDX, and MID) have recorded 52-week highs and are currently challenging pivotal breakouts that may lead to record highs. Only one key market index (SML) has struggled to clear its respective 52-week high.
Although stocks have rallied sharply over the past year on backdrops of economic and geopolitical headwinds, investors remain cautious.
Will stock market indexes continue to climb the proverbial wall of worry?
Will the strong price momentum carry indexes toward new all-time highs into year-end and early Next Year?
Enclosed are charts of popular market indexes. Also attached are stocks trading at new 52-week highs, suggesting relative strength and price momentum leaders into year-end and early 2024.
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