It doesn't always work: sometimes it gives false signals. But overall it looks like it's worth keeping an eye on this. The theory behind this is described in this interview with Paul Desmond. When the number of stocks making new highs starts to falter, the index swings up and down. This indicates that the market is starting to lose steam, the breadth of the rally is thinning, and only the major stocks are still going higher, while the rest are already declining.
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