Ratio Of New 52 Week Highs & Lows Confirms Extreme
Published January 31st, 2008 in Market Internals Tags: common stocks, inflection point, Nasdaq, new 52 week highs, new 52 week lows, new highs, NYSE, stock market bottom.A few days ago I featured the charts of the new 52 week lows for the Nasdaq and the NYSE showing that we’d have to go back all the way to 1998 to find higher extremes.
Contrary to what some might suspect, a spike to record heights in fresh stocks plumbing the depths of annual lows is actually good news for the stock market. It means that we have a washout of selling, a euphoria of panic. That is where the market finds its legs again.
But one of the comments I got was that since the number of stocks trading changes over time, this isn’t a very valid argument to make. For all we know the only reason there was such a record now is that we simply have more stocks trading and therefore more probability that of that population, a higher sample would hit 52 week lows.
Makes sense to me. So to check it out I looked at another set of statistics: the ratio of new highs to new lows.
If we follow the same argument, of the larger population of stocks being traded, there should be as much chance of stocks hitting new 52 week highs as 52 week lows. So by comparing the ratio of the two, we can normalize over time and compare apples to apples.
Note: I’ve inverted the charts to make it similar to the new 52 week lows chart I showed previously - so a spike up marks a bottom
Ratio of 52 Week Highs to 52 Week Lows for the Nasdaq:
Ratio of 52 Week Highs to 52 Week Lows for the NYSE:
So we can rule out that anomaly. It seems that the extreme reading is legitimate. Although I would take the NYSE data with a wheelbarrow of salt since more and more non-common stocks (but rather interest rate sensitive synthetic securities) are trading there.
common stocks, inflection point, Nasdaq, new 52 week highs, new 52 week lows, new highs, NYSE, stock market bottom
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So would it be better to perform this analysis on the S&P and Russell? Would that give you a better reading since it will contain; small & big companies from all sectors.
With all due respect, I disagree with your conclusion and so should you. Just look back to the previous Nasdaq high ration that you circled. It happened to be about 9 months prior to the Nasdaq’s all-time high. Yes, 2002 also saw a spike and it was the low for the Nasdaq …. so I’d have to conclude this isn’t all that reliable an indicator.
The 52 weeks Highs vs Lows give a similar charts as the chart of the Bullish Percent Index. I used this charts in one of my recent posts on my blog :
http://blackcrowtrader.blogspot.com/2008/02/is-this-bear-market.html
And I do agree with Joe. Such charts do very say about the future but they do say something about the recent past. What we’ve experienced lately is very extraordinary.
Greetz
Stefan
Joe, the circle is for 1998 not 1999. that would make it about 18 months from Nasdaq’s all-time high not 6 months. unless you’re referring to the 1999 extreme, yes a major bubble was pending but still good be long several months before the March 2000.
Jimmy