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More Evidence of a Weary Stock Market

The number of individual stocks making new highs is shrinking, supporting the overbought case.

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We're at the end of the month, and soon we'll see if money managers will mark up stocks, only to turn around and sell them on the first day of May. If we get a rally, we should see an increase in the number of stocks making new highs. But this indicator has been lagging recently, and if it doesn't start improving soon, it's going to become quite worrisome.

The

New York Stock Exchange

had 194 stocks make new highs last Tuesday, which wasn't a bad showing. On Wednesday, the

S&P 500

rallied to a new high on both an intraday basis and a closing basis, but the number of stocks making new highs stayed at 194. That was one of the signs of fatigue I noticed as the markets headed toward an overbought reading.

The market climbed nicely on Monday, and the number of stocks making new highs totaled 148 -- about 50 fewer than last week. The bear in me wonders why there wasn't an expansion of new highs. The bull in me responds by saying that the averages didn't make new highs, so we should be patient.

Then Tuesday, despite the lack of a new closing high on the S&P, the index had a new intraday high, and the number of stocks making new 52-week highs came in at 143.

Maybe this sounds like I'm making a big deal about nothing, but I think it provides evidence of the market's overbought condition. Remember, an overbought condition occurs when the market loses upside momentum, not necessarily when it goes down. Since last Tuesday, the market has essentially been correcting.

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One of the key levels I'm watching is 2400 on the Dow Jones Transportation Index. This area should be a tough one to get through. Everyone's talking about the 15% rises we've seen on the S&P,

Nasdaq

and

Dow Jones Industrial Average

, but the transports are up almost 25% from their lows. A pullback of some sort seems to be in order for this average now.

I'd also like to offer a quick follow-up on gold. The Philadelphia Gold & Silver Index failed at 70 and is now coming down into a previous support zone. I expect this trip to the low 60s should find support, but the rally off that level will be important. I'll keep watching to see if we're looking at a real rally or what ends up being a sideways move.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's

primer.

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Helene Meisler, based in Shanghai, writes a technical analysis column on the U.S. equity markets and updates her charts daily. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback and invites you to send it to

Helene Meisler.