As the DJIA and the SP500 continue to make new high, the casual market watchers will think better time is ahead for the market. But for those that watch not only the market indices, those market watchers will know things are not as they appear to be. Beneath the surface of the market indices, there are vital market indicators that gauge the inner strength of the market. The daily advance/decline breadth indicator and the new high/new low are just a couple of these indicators that measure the strength of the market.
As one can see from the chart below, the SP500 has been making numerous new high while the advance/decline and the new high/new low are not expanding into new high. They are actually contracting while the recent new high was being made. This divergence is the first sign indicating the market is getting tire and caution should be exercise to avoid being caught in the market euphoria. As the market top is being made, these market breadth indicators will turn negative in addition to their divergence.
