Complacency Takes Over As Fewer Stocks Hit New Highs

There was a very interesting note put out by Andrew Lapthorne of Societe Generale discussing the complacency that’s taken over. As the number of stocks making new highs dwindles we are seeing minimal market volatility. How long can it last?

From Business Insider:

“Little wonder,” wrote Societe Generale’s Andrew Lapthorne this morning. “The number of 1% down days for the S&P 500 in any given year has averaged 27 since 1969; the S&P 500 has seen just 16 1% down days over the last 12 months. It has now been 468 days since a market correction of 10% or more, the fourth longest period on record, and, as we show below, the annualised peak to trough loss has only been 5% compared to typical annual drawdown of 15%.”

Lapthorne charted the maximum annual drawdowns in the S&P since 1970. As you can see in the far right, volatility has been below normal.


SG chart

Traders are beginning to get use to stocks just going up. Forget the fact that the number of stocks that are making new highs has been dropping all year. The chart below shows the number of stocks that are making new highs vs. new lows over the last five days. In 2013 we saw this number stagnate around 4,000 as the S&P 500 ($SPX) put in one of its best years in quite a while. But it’s been a different story for 2014, as we sit at just over 1,000 net new highs and the S&P is just a few points from its own new all-time high.

New Highs

Source: We’re Witnessing A Risky Build Up Of Investor Complacency In The Stock Market (Business Insider)
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About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.