One reason cited by IBD recently for their lack of confidence in the current bottom attempt is the lack of stocks with sound basing formations. While doing a historical study of the number of basing formations seems near impossible to me, one reader suggested looking at new highs. I thought this was a good idea since it should give a reasonable estimate of leadership breadth.

I looked at every Follow Through Day (FTD) identified in Part 1 of the IBD Follow Through Day Study and calculated the percent of New York Stock Exchange stocks that hit new 52 week highs on the day of the FTD. I broke the results down into “Successful” and “Unsuccessful” FTD’s.

This is what I found:

The average percentage of NYSE stocks making new highs on “successful” FTD’s – 2.1%
The average percentage of NYSE stocks making new highs on “unsuccessful” FTD’s – 2.0%

The median percentage of NYSE stocks making new highs on “successful” FTD’s – 1.2%
The median percentage of NYSE stocks making new highs on “unsuccessful” FTD’s – 1.4%

The minimum percentage of NYSE stocks making new highs on “successful” FTD’s – 0.1%
The minimum percentage of NYSE stocks making new highs on “unsuccessful” FTD’s – 0.1%

It appears that leadership breadth has no predictive value when assessing the likelihood that a FTD will succeed or fail.

On January 31st there were 18 new highs out of 3272 issues traded on the NYSE according to my database. This equates to 0.55% and has hereby been deemed a useless fact.

I found the results somewhat surprising as I thought leadership breadth would provide at least some advantage.

I still feel leadership is important to sustain a rally. It appears many times the real bull leaders may not emerge immediately. While the FTD typically comes 4-10 days after the bottom, leadership may take 3 weeks or more to establish itself.

So will this rally attempt succeed? I don’t know. I do know if it fails it won’t be because leadership breadth was too weak.

After all this recent testing of “conventional market wisdom” I’m starting to feel like Adam and Jamie from the Discovery Channel. Myth: Leadership Breadth Is Important At Market Bottoms – BUSTED! Think I could land my own tv show?