Trader’s Narrative

About two weeks ago I brought up an indicator, the New Highs/New Lows on Nasdaq eventhough it wasn’t really telling us anything interesting back then. It is a ratio measure of stocks within the Nasdaq making 52-week new highs and new lows. It is a percentage so it ranges from 0-100%. When it is low, it means that very few Nasdaq stocks are making new highs while the vast majority are making new lows.

Back then it had fallen to 30%. Low but not really extreme. It was worth watching because of its uncanny ability to find market bottoms.

As I mentioned, for a good solid floor under the market this indicator needs to reach atleast 10%. In the past, this level has coincided with significant market bottoms.

As a result of last Thursday’s heavy downday, this indicator finally breached the 10% line in the sand to hit 9.4%. On Friday, eventhough the market continued to sell off heavily, this indicator surprisingly went up 2.18% percentage points.

Which means that while the indices were getting clobbered Friday, actually less stocks were hitting 52 week bottoms and more were making 52 week highs. This is the sort of divergence that I’d love to see more of.

I didn’t include a chart of the S&P 500 but I’m sure you recognize all of those points in time with the green arrows as major market bottoms.