Fewer Highs Show U.S. Rally Is Narrowing: Technical Analysis

The Standard & Poor’s 500 Index topped its February peak yesterday with fewer stocks driving the rally, meaning investors should buy individual equities rather than trust that bets on the entire market will be profitable, Bespoke Investment Group said.

When the benchmark gauge for U.S. equities climbed to the highest level since June 2008 yesterday, 17 percent of its companies reached 52-week highs, compared with 21 percent at the peak on Feb. 18. At the same time, 74 percent of the stocks closed above their 50-day average price, less than the 75 percent established on April 6, Bespoke data show.

“When the S&P 500 makes a new high, one would expect to see the number of new highs in the index expand, and the more the better,” Paul Hickey, co-founder of the Harrison, New York- based research firm, wrote in a note published yesterday. “A lower number of new highs indicates that the rally is narrowing.” He added, “the tide would likely no longer lift all boats.”

The S&P 500 surged 99 percent through yesterday from a 12- year low in March 2009 amid economic stimulus measures from the U.S. government and earnings that topped projections for the ninth straight quarter.

“If the last two years has been like shooting fish in a barrel, going forward investors will need to increasingly focus on technique and style,” he said.

Technical analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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