Market Breadth: News Highs, New Lows

One of the most basic and easy to use breadth indicators is comparing 52 Week New Highs to 52 Week New Lows in any of the indexes. If you’re trading breakouts and you want to have a higher win rate, commons sense says you should trade when more stocks are making 52 week highs than lows. The formula is pretty straight forward: 52 Week New Highs -  52 Week New Lows.
Using Stockcharts.com you can chart the 1 day moving average and 10 day exponential moving average against their pre-built New High/New Low indexes ($NAHL in this example).  When the 1 day crosses above the 10 day you get a bull signal and when it crosses below the 10 day you get a bear signal. Looking at the chart, Bullish signals were July 2011 and then September of 2010. We received two bear signals in June and July just before the market went into a corrective phase.
I’ve charted three years of data but watching the last 12 months will give you a clearer picture of the cross over points.
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By following this indicator you can move into the market as stocks begin their next move up. Catching stocks as they move out of a correction offers the lowest risk to highest reward entry point. The key is not to get into early and whipsawed out of your positions.
This indicator has done a good job of keeping you out of the sideways chop we’ve experienced since August. What does this indicator tell us about those bullish thrusts we experienced towards the end of November?
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While impressive, the $NAHL index never crossed back up confirming the move. According to this indicator, cash has been the safest place for months.
For the working person this is an easy to use indicator allowing you to move into the market during the bull phases and get you out before significant corrections.

14 Response to Market Breadth: News Highs, New Lows

hef
December 18, 2011 at 12:38 PM

PF,

looks like there was a bullish signal last July, between the two last sell signals, no? How can you have two consecutive sell signals without a buy in between?

thx

December 18, 2011 at 7:55 PM

Hef, you are correct. I uploaded a new image and made the description a little more clear. thanks.

December 19, 2011 at 9:33 AM

Good one DC..

December 19, 2011 at 9:45 AM

Nice DC. I wonder whether your the method gave bullish signals on Aug 2010 and late Oct 2011.

I am asking because I also monitor something very similar but bullish signals were given on those periods. From the chart you have, it is rather difficult to see what happen on those periods.

http://timelysetup.files.wordpress.com/2011/12/daily-market-nahl-20111216.png

Alvantage

December 19, 2011 at 9:48 AM

Very nice and simple

December 19, 2011 at 9:56 AM

Alvantage, the 1 day never closed above the 10 in Oct 2011.

http://stockcharts.com/h-sc/ui?s=$NAHL&p=D&yr=1&mn=0&dy=0&id=p64246838234&a=243953578
July 2010 looks like it did give a bull signal that failed in August
http://stockcharts.com/h-sc/ui?s=$NAHL&p=D&st=2010-01-01&en=2010-12-01&id=p40229946697&a=243953578

December 19, 2011 at 10:14 AM

Thanks DC. We are essentially looking at the same thing. We just use slightly different averaging. But it is kind of strange, because I use longer average (20 SMA vs 10 EMA). Theoretically, I should have less whipsaw but the signals change later. Maybe there my data and that of stockcharts are a little different.

December 19, 2011 at 10:15 AM

... Maybe my data and that of stockcharts are a little different...

December 19, 2011 at 10:16 AM

I use 20 SMA and you use 10 EMA.

Dan
December 19, 2011 at 10:16 AM

Did you try switching to 20 ema just to see if it cleans up some of those signals? Does seem odd that it would be that different.

December 19, 2011 at 10:38 AM

well, i don't use stockcharts data. so, switching to ema did't make much difference.

December 20, 2011 at 7:32 AM

Great post. Thanks for all your work on this site. I hope you don't mind me quoting some of the text from this post over on my site in my effort to try and tie these comments with some others.

January 16, 2012 at 6:26 PM

Using your criteria, I get a very different chart: http://stockcharts.com/h-sc/ui?s=$NAHL&p=D&yr=3&mn=0&dy=0&id=p91451147923

January 16, 2012 at 6:29 PM

Never mind. I didn't notice the Cumulative parameter at first, but when I made that adjustment it matched your chart. Thanks for the idea.

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