“The fact the market is making new highs on the backs of fewer and fewer stocks is a huge sign of distress that investors should beware of, according to Mark Newton, chief technical analyst at Greywolf Execution Partners.
That kind of top-heavy upward trajectory often leads to trouble, he told CNBC and Yahoo’s Talking Numbers. In fact, the one-month daily average of stocks hitting 52-week highs is approximately 26, down sharply from about 101 at the same time in 2013.
“If you look at the breadth, we’ve seen a pretty amazing amount of deterioration just since last May,” Newton noted. “It’s dramatically down from what we’ve seen over the last year. And, that is a concern.”
Newton said he is looking for a summer pullback in the market because stocks are “the most overbought we’ve been since 2007.”
“We could have a pullback between the months of July and September/October. That historically is a seasonal time of weakness.”
Steve Cortes, founder of Veracruz TJM, also urged caution on grounds that fundamentals are weak.
“Total stock market capitalization — the value of all stocks put together — as a percentage of total U.S. GDP are right back near the highs last seen in the year 2000,” Cortes told Talking Numbers. “Stocks as a percentage of the economy are incredibly expensive.”
Anthony Mirhaydari, founder of Mirhaydari Capital Management, predicted in a column for Investor Place that the current stock market rally will not last.
He said housing looks good, but other fundamentals in the economy look weak….”
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