Internal Cracks Are Showing In The Market – Nasdaq’s Bad Breadth & Options Skew

Last week we warned of 'low volume highs' as internal cracks began appearing in the markets. Today, J. Lyons' Fund Management's Dana Lyons points out another 'crack' - The recent string of Nasdaq new highs occurring with negative breadth has only been matched by a stretch in 1999-2000.

In the last few months, we have observed a recent cluster of 52-week highs in the Nasdaq Composite occurring along with negative breadth on the exchange, i.e., more declining stocks than advancers.

Wednesday marked the 7th such occurrence in the last 3 months. That is the largest string of these days on record, outside of a run of 12 that ended in late January 2000. I probably don’t have to tell you what happened soon after that episode.

This chart shows all of the 3-month clusters of at least 5 occurrences going back to the late-1980′s.

So is this a red flag regarding the durability of the bull market?

Some will point to it as evidence of a thinning out of the rally.

We certainly have seen these clusters pop up in the lead up to some tough markets in the past, e.g., 1998, 2000, 2007, 2011.

Furthermore, as Nasdaq has soared  - SOMEONE has been buying downside protection...

To its most extreme level since November...

So these new highs are not seeing an exuberant following.

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