New high and new low indicators by Mike Burk
I use new high and new low indicators to help define cycles. My new high and new low indicators, which I developed with a computer and represent graphically, are exponential moving averages of the daily new highs and lows of the New York Stock Exchange.
These indicators have specific uses. For example, the new high indicator is useful for confirming upside moves but is useless on downside moves. However, the new low indicator is the single best indicator I have found for defining cycles.
Below are the definitions of the terms I use to discuss these indicators:
• Confirmation — Both a price index/average and an indicator reach a new high or new low for the period in question. Figure 1 is a good example of consecutive new high confirmations on the Dow Jones Industrial Average (DJIA).
• Non-confirmation — A price index/average reaches a new high or a new low for the period and the indicator does not. Confirmations imply no reversal in prices, while non-confirmations suggest a price reversal.
• Period –– The number of trading days shown on a chart. Some of these indicators are period-sensitive — that is, with a period longer or shorter than that recommended, the indicator may be confusing or even misleading.