In a week in which Warren Buffett said that “it’s quite clear that stocks are cheaper than bonds, I can't imagine anyone having bonds in their portfolio when they can own equities”, it’s little wonder that equities have continued their recent strength.

In spite of weakness today, the FTSE 100 was up by 1.2% on the week and the FTSE small cap index has continued on to further new highs. It appears that money has been rotating out of the defensive consumer stocks into cyclical base and precious metals, mining, engineering and alternative energyas investors have become more confident in a rebounding global economy.

One interesting way to track the pulse of the market by focusing on those stocks making new 12 month highs and new 12 month lows. The list of new highs is a constant source of new ideas as the only way for a company to become a ‘multi-bagger’ is by appearing on this list many times in succession.  By keeping one eye on this list each trading day, you can regularly find new names for further research.

But it’s not only the names on this list that are of use. The ratio of highs to lows can tell you much about the health of the market, as it is an indicator of the market’s ‘breadth’.  In recent weeks, the ratio has stood at 3 new highs to each new low which signals a broad participation of stocks in the current rally. Often a divergence suggests that a move in the index is unsupported by the overall market, and thus can be seen as an early warning sign of that the market is at a turning point.  Of course, any indicator taken in isolation cannot be trusted, but as another tool in the investor’s toolbox breadth indicators such as this are very useful.

New Highs

There have been over 100 new 12 month highs on the London market in this week’s trading. The main story has been the continued charge of the Gold price, which burst through the $1300/oz barrier and now looks to be breaking out to a new high in Sterling too. In times of financial distress and concern over fiat currency devaluation, many look to Gold as the oldest and most reliable currency around.  As a result, there has been much strength in London listed gold companies, with a number gold…

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