#-ad_banner-#Like many of my readers, I like to set aside time every week to read the latest issue of my colleague John Kosar’s Market Outlook advisory. 

If you don’t read Market Outlook, I highly recommend adding it to your list; the quality analysis from my fellow Chartered Market Technician provides an in-depth look at what’s going on in the major indices, commodities markets and important market news — information all investors should stay on top of. Plus, it comes free with every subscription to my premium advisory, Alpha Trader.

In the past few issues, John’s outlook has turned cautious as a handful of the important technical indicators he covers start to flash bright yellow warning signals.

Concurrently, my Alpha Score system — which ranks stocks from 0 to 200 based on technical and fundamental indicators — has tagged fewer buy recommendations than normal. 

So, what’s going on with the market?

If you look solely at the major indices, nothing seems amiss — the S&P 500, Nasdaq Composite and Wilshire 5000 are off only modestly from their 52-week highs. But despite the relative calm on the surface, hundreds of stocks are quietly tanking.

A classic technical indicator has confirmed my belief that the market is actually experiencing a “stealth” correction. 

One of the most bullish things a stock can do is go up in price. Conversely, one of the most bearish things a stock can do is fall in price. New 52-week highs and lows show these bullish and bearish trends in action. This carries important weight as a longer-term indicator, which are slower to change but carry more power when they do.

As a market technician, I like to keep an eye on the number of stocks making new 52-week highs and lows. 

This number can actually be extremely important when it comes to determining the strength of a market’s trend. Bull markets are much stronger when paired with a large number of stocks hitting new 52-week highs. These stocks are like foot soldiers. The fact that there are so many and that they’re making a greater show of strength indicates broad leadership and support. Technicians love to see this. 

Contrast this with a market that rises on either a decreasing number or very few stocks making new highs. It shows a contraction in the numbers of foot soldiers rising with the market. Fewer stocks are validating the overall market uptrend. This shows a tired and potentially vulnerable market. 

Now, let me show you the stealth correction in action with the following three-year chart: 

There are three parts to this chart: The top section shows the Wilshire 5000, the broadest, most liquid measure of the U.S. stock market. The middle panel shows the number of stocks making new 52-week highs (green) versus the number making new 52-week lows (red). You can see new lows really expand when the market falls. Finally, the bottom panel shows a 10-day moving average of the number of new highs minus new lows. When the average is above zero, new highs are outpacing new lows; when it’s below zero, new lows are outstripping new highs.

During corrections and bear markets, we usually see the number of new 52-week lows explode dramatically. 

Now here’s the same chart, this time with four important sell-offs highlighted. Note the surge in new lows that accompanied the declines. It’s similar to what I’ve seen over the past five weeks. 

But there is a clear difference. Note the current paltry level of decline in the Wilshire 5000. Despite a huge surge of stocks trending lower and showing weakness, the index barely budged. Yet under the surface, new lows have exploded. 

Compare this to prior declines in the Wilshire 5000, which were significantly larger. This is why I call what we’re currently experiencing a “stealth” correction. 

You can really see this in the bottom panel with the 10-day moving average of new highs versus new lows. This is a running tab of the net change, and it’s currently lower than all but one other period of decline in the market. 

As a result, I’d be very cautious about entering into new positions in stocks right now. There have not been many stocks reaching new highs, and that’s bad news for the bull market. 

The good news is that there have been slim pickings for new recommendations over the past month in my premium newsletter, Alpha Trader. 

You might be asking, “Why is that such a good thing?”

You see, my subscribers and I only buy stocks that are a) fundamentally sound and b) in an uptrend. And when the market undergoes a “stealth correction” like this, the Alpha Score system automatically reduces risk in new stock opportunities because few to none make the cut. It’s self-modulating and unique in this respect. 

Conversely, a strong and strengthening market will be filled with an increasing number of stocks making new 52-week highs, which means we’ll see plenty of new “buy” candidates with high Alpha Scores. Until then, we go with what the market provides.

Avoiding corrections and losing stocks is just as important as finding winning stocks during bull markets. That’s why the Alpha Score has become the most accurate indicator in our company’s history — and it’s allowed my subscribers and I to book gains of 20% in 14 days… 82% in 48 days… 118% in 86 days… 266% gains in 12 months… And dozens more. To learn more about the Alpha Score and how it could deliver as much as 83% gains in 28 days, simply follow this link.