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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.
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