The market is making new highs on the backs of fewer and fewer stocks. The one-month daily average of stocks hitting 52-week highs is currently about 26. One year ago, that number was about 101. In other words, we've gone from 1 out 5 stocks in the S&P 500 hitting highs to just 1 out of every 19.
"If you look at the breadth, we've seen a pretty amazing amount of deterioration just since last May," said Mark Newton, chief technical analyst at Greywolf Execution Partners. "It's dramatically down from what we've seen over the last year. And, that is a concern."
Although Newton doesn't see a reason to sell stocks right away, he sees the potential for a bit of a retracement in the coming months. The markets are "the most overbought we've been since 2007," he said. "We could have a pullback between the months of July and September/October. That historically is a seasonal time of weakness."
Some sectors may have seen some improvement recently, but the markets may not be out of the woods just yet.
"We've seen a little bit of a sign of technology, consumer discretionary, and financials starting to act better," notes Newton. "But it's really not sufficient now to argue that things are all that healthy compared to where we were even a few months ago."
Steve Cortes, founder of Veracruz TJM, believes the fundamentals are also shaky for the markets.
"Total stock market capitalization – the value of all stocks put together – as a percentage of total U.S. GDP are right back near the highs last seen in the year 2000," Cortes said. "Stocks as a percentage of the economy are incredibly expensive."
"Stocks have done extremely well, but Main Street is just doing okay," Cortes added. "Caution is really in order here."