An assist in market timing
by Irving Lehren
Determining turning points and changes in the stock market often requires looking back at how the
market reacted under similar circumstances. But aberrations occur in most cycles and a trader must
formulate some intuitive judgment to arrive at a decision.
An essential factor in coming to grips with the stock market should be an indicator composed of the
stocks that make new highs each week. Logically, it should reveal the flow of money or the state of
sentiment—if stocks are making new highs, this signifies the investment attitude is positive; a lessening
of new highs signals non-conformance and results in a trend reversal.
In developing a reliable indicator of market sentiment based on new highs, I tried various time periods
and found that a running five-week total of new highs resulted in an easily kept chart (Figure 1) and few
You can construct this chart of the New Highs Indicator using the weekly "new highs" number published
in Barron's or The New York Times.
Start by adding the weekly number of stocks making new highs for the past five weeks. Each week, add
the current number of new highs and subtract the oldest new highs number.