The New Highs New Lows is an interesting indicator to analyze the US stock market.
This indicator calculates the difference between the number of stocks that make new highs and the number of stocks that made new lows (of the last 12 months).
You can calculate this indicator daily, but can also be calculated every week.
It identifies how many stocks have registered new highs and lows over the last week.
With the New High New Low Indicator, we can obtain interesting information about market strength.
New price highs should be associated with a new indicator high, to confirm a bullish trend.
The number of stocks pushing up to new highs will grow significantly. The number of stocks falling to new lows will be reduced.
To clarify, new price lows must be associated with a new indicator low, to confirm the presence of a bearish trend.
It will be necessary to increase the number of stocks falling to new lows and to decrease the number of stocks rising to new lows.
A rising New High-New Low indicator, confirms a bullish trend and indicates that many stocks follow the positive trend of the benchmark index.
A decreasing New High-New Low indicator, confirms a bearish and indicates that many stocks follow the negative trend of the benchmark index.
The New High-New Low to confirm the short-term trend
Firstly, a downward divergence occurs between the market index and the New High-New Low indicator.
When the former draws new rising highs, and the latter fails to exceed its previous highs.
This behavior indicates that the upward trend is losing strength, a situation that often anticipates the formation of a top on the market.
There is an upward divergence between the market index and the New High-New Low indicator when the indicator draws new decreasing lows, and the price does not fall below its lows.
This behavior indicates that the downward trend is losing strength, and an accumulative phase may have begun.
The new High line must behave in the same way as the market, to confirm the presence of an upward trend.
For example, to avoid obtaining an excessively erratic line, we can calculate a moving average (at 10/20 periods).
Some analysts do not use the New High-New Low indicator as a difference. They prefer to use the two values separately.
Above all, this indicator will display separately the number of stocks rising to new highs and the number of stocks falling to new lows.
Other analysts calculate the New High-New Low oscillator using the ratio of the number of stocks that record new highs and the number of shares that fall to new lows.
The formula of this oscillator is as follows:
New High/Low = 100 × (New High – New Low) /(Number of shares in index)
There is a New High-Low calculated on the quoted securities of the S&P500, NYSE, and Nasdaq.
John Murphy 10 Laws