V.14:3 (97-102): New Highs and New Lows by Tim Hayes

V.14:3 (97-102): New Highs and New Lows by Tim Hayes
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New Highs And New Lows

The number of new highs and new lows is a classic stock market indicator, and here are ways that this market statistic can be modified to build a number of market indicators. By Tim Hayes, CMT

Market breadth and the health of the broad market as a whole can be measured in many ways. You can use advance/decline lines and other indicators based on the number of advancing and declining stocks. You can use indicators based on advancing and declining volume. And you can use the number of stocks reaching new highs and new lows. All are very useful, but let's focus on the latter approach; it's appealing for its simplicity, yet lends itself to a vast array of indicators that can improve your timing of major market turns.


What are new highs and new lows? As used most commonly, a new high is a stock's 52-week high (its highest level in a year) and a new low is a stock's 52-week low (its lowest level in a year). The stocks that have reached new highs and new lows during any given week are listed in Barron's , while The Wall Street Journal and Investor's Business Daily list each day's stocks that have closed at new highs and new lows. Since a stock listed in the daily publications on three successive days would be listed just once in the weekly publication, the historical data series have different extremes and volatilities. This is evident when comparing the daily series plotted in the bottom of Figure 1 with the weekly series plotted in the bottom of Figure 2. But while the daily totals are lower and more volatile than the weekly totals, their trends are consistent. And both series can be useful for timing the market.

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