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Another Way To Look At New 52 Week Highs at Trader’s Narrative





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I tinker a lot with different market indicators and usually end up at a dead end. That’s no fun but I don’t consider the time spent on such fruitless endeavors as wasted because they are really mental calisthenics. Sometimes though, quite rarely, the result is interesting enough or useful enough that it is worth sharing with others.

Back when I was scribbling into the void, I started this blog with a wacky idea that combined two measures of the percentages of stocks above their moving averages: Timing the Market with Percent Above Moving Average Ratios. Yes, that is a mouthful. But it is also an interesting twist on the breadth indicator.

Most recently I’ve been fixated on the number of new 52-week highs in the market. Their significance is derived from their ability to signal a market turn well ahead of the actual top. Of course, this makes it both intriguing and infuriating because even if the number of new highs tops and declines, you don’t really know when exactly the market is going to crest. It could be right away or months in the future.

This week I mentioned the divergence in the number of new highs. As I continued to play with this concept I decided to look at the cumulative NASDAQ new 52 week highs. By itself, that turned out to be rather boring because it just looks more less looks like a straight line going up across the chart.

To make it more interesting and bring out the “bumps” in the chart I took a 10 day rate of change (ROC) of the cumulative new high data. Why 10 days? There is nothing magical about that number but it accounts for 2 weeks of trading and is long enough to be smooth but short enough to be agile. You can easily choose another and see if it works better.

Click to see a larger version of the chart in a new tab:
cumulative new high ROC S&P 500 index comparison Mar 2010

I have no idea if anyone has ever used the new 52-week high data like this. There is a distinct possibility but I’ve never seen it. If you have, then please let me know that I’m just re-inventing the wheel here and should go for a brisk walk instead. Until then, I’ll continue with your indulgence.

The first thing you notice is that ‘peaks’ in the ROC (bottom chart) correspond with market peaks in the S&P 500 index. There were several in 2007: April, July and of course, October. By the way, I realize that we are looking at a very short period of time and that it may not be enough to glean anything useful. But this is a starting point, not a conclusion.

Another point is that the higher the ‘peak’ the more significant the top seems to be. That would be natural since markets can not push forward without a significant number of individual stocks pushing higher into new highs. During most of the bear market, there is a lull in the ROC as new highs become as rare as Dodo bird sightings. Then more recently, we come to see several ‘peaks’ as the ROC has increased in volatility.

The other observation is that the 3 peaks that we saw in the ROC in 2007 were each lower than the previous. So as the market was heading higher, the momentum was waning. We have the opposite right now with the peaks overtaking the previous one.

Finally, the slope of the ROC itself may be a useful indicator. It seems that when it is rising, the stock market is also rising. When it curves down and heads lower, the market also falls. Or am I just seeing things?

I’ll continue to play around with this a bit more but wanted to share it with you in its raw form. I’d love to hear your ideas, whether you agree with this line of reasoning or not. Drop me a comment below with your thoughts.

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11 Responses to “Another Way To Look At New 52 Week Highs”  

  1. 1 Tom Goodson

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    This is fascinating. Guess we will have another test soon…. sure looks like an accurate indicator. And certainly the corresponding downturns reacted very close to the fall in ROC. Suppose the opposite would work on new lows, but I dont think we will test that for awhile! We should get there soon, but not looking for the bounce after this craziness corrects ( finally).

  2. 2 allclear

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    Yes…i’ve been playing with the same thing. i think the important thing to notice is whether the market is trending up or down. Also, the slope (positive/negative) will
    ultimately determine the upcoming major turn. here is my chart similar to yours exccept I used the slope vs. ROC. I could not get the ROC to work on my chart. Also, i only have access to NYA 52-week high data. here is the link to stockcharts. if you don’t have an account, you will not be able to see it. you can email me if interested. thanks for your good work. appreciate your site greatly.

  3. 3 Investor

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    Hi, first time I comment. Great site, some really value added stuff.

    Very interesting post. Was wondering though, how exactly is the “Cummulative NASDAQ New 52 week highs” calculated? How does it differ from the regular (or non cummulative?) “NASDAQ New 52 week highs”? Many thanks.

  4. 4 JAC

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    Great chart. Great work.

    Based on latest wave in highs (from high in Jan to low in Feb and higher high now), you would think vix will be higher indicating more volatility. It is not. That is strange.

    This late in the cycle (after 70% rally), why are we seeing such a swing? Does it mean, this is one last sugar high or it means economy is so on track for a V recovery?

    When is this kinda bullishness bullish and when is it exhaustion?

    Chart wise, I see exhaustion (desperation) when you consider low volumes and all.

    Comments?

  5. 5 TRW

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    Great work. Many of the indicators I use behave differently in bull market vs. bear market environments and this one looks the same. We should keep an eye on this and look for refinements. Thanks for sharing this though. Very impressive.

  6. 6 bareboatbvi

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    Very interesting indicator …. hopefully one that will continue to prove accurate and insightful.

    For alldear: Thanks for sharing. Your indicator looks remarkable accurate as well.

    For JAC: I’m inclined to agree with exhaustion. There are now two trend lines on the daily S&P chart that have increasing upward slopes. The first starting at the Feb 5 low to the Feb 25 low, and the second from the Feb 25 low to the March 22 low (could possibly extend to today’s low). If we do get another upward sloping trendline off of today’s low then for sure we have the last leg of an exhaustion playing out. If we don’t get that third trendline higher, I still think we’re “top heavy”.

  7. 7 Damian

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    Any idea how the cumulative new highs is calculated?

  8. 8 Jeffrey Young

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    I am curious why you used the NASDAQ 52 week highs as opposed to the NYSE? I can probably anser that question myself but I wanted to hear. my guess is that the NASDAQ offers an earlier look at turns because it usually leads the risk money category and when that pulls th other indices will follow.

  9. 9 Wayne Nikitiuk

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    Great work allclear…pls. continue to post here with this chart…I can see us turning higher marginally north of 1200..into April-May..and then a more viscious corrective move..and one last rally spike to modest new highs above 1300 even…as this shorter bull cycle plays itself out..and then the lousy fundamentals re-assert themselves; years of on/off again recessions…

  10. 10 AUGUST LOCALLO

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    New Highs

    The best way to look at new highs is the ten day average of new highs and lows
    compared to the 30 day average of new highs and lows.Right now the 10 day average is declining to 328, and the 30 day average is rising to 279. The 30 day
    average has only Monday to take off a high low of less than 100. This should be real
    bearish implications. The 10 day is declining and a very real possibility of the 30 day
    declining sets up for a major bearish pattern. Another way to look at new highs is
    to compare the 10 highs to 10 days of highs and lows. Recently, the 10 day %
    was a 99.5%. It has dropped to 98.3%. There is a lot of room to decline. Using that
    tool as your only indicator, only gives a sell signal below 70%. This indicator will be
    watched with considerable interest because the last decline from 99.5% in January
    resulted in a minor drop to 81%.

  11. 11 AUGUST LOCALLO

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    The ten day high low index has declined to 255.6. THis is the first of possible many signs, that show this market is in the last stage of its rally. What is significant is that the 10 day average has dropped below the 30 day average. The 30 day average is now at 293.3 . This 30 day average has the potential of declining numbers. Unless this market keeps going up, there is a good possibility of declining numbers. Also, the 10 day high low percentage has declined from a recent high of 99.5% to 97.2%. I call this situation the balloon effect. The market is going higher, even though the internals are weakening.The all important 150 day average is taking off the lowest Dow figure on Friday. After this week, the 150 day average has potential to start
    flattening for individual stocks. The 150 day average is 10208 on the Dow. The 200 day average is 9875 and still rising for at least another 6 weeks. This average is almost a sure thing to reach 10,000.

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