The DJIA closed up once again, and that mean it made another new all time high. One would think the market technicians are celebrating with joy and holiday cheers. Well, maybe those technicians that only watch the stock charts and pay little or no attention to the market breadth are celebrating. Those that are the true student of the market are probably getting a bit nervous. Here are some of the things that cause these market technicians to be nervous: 1) non-confirmed DJIA new high, 2) down volume greater than up volume, 3) declining issues outnumbered advance issues, 4) less than 200 issues made new 52 week high, 5) issues made new 52 week high nearly equal to number of issues made new 52 week low. Notice these are all market breadth, not a derivative of the price, i.e. RSI, moving average, etc.
But, under all the above negative market breadth, still there are stocks with nice setup and potential breakout. And for those students of the market trading those price actions, tight stop is the name of the game. As history has shown, if the DJIA continues to move upward without broad market participation, the final stage of the bull market is here and the ‘flight to quality’ is in full force. This is when one needs to be very selective and defensive since the broad market will be in a protracted stage while the DJIA continues to make new high, and those uninformed dip buyers will be vulnerable to bull trap.
