Category: Internals
Description:
The number of stocks reaching a new 52-week high relative to the number of stocks falling to a new 52-week low is a measure of the market's breadth. In a healthy market an increasing number of stocks will make a new high as the market climbs. In the late stages of a bull market the advance "narrows", meaning fewer issues reach new highs along with the major indexes. Similarly, the end of a bear market is evident when the number of new lows decreases even as the market declines.
How to use the New High Low Ratio:
The two indicators on this chart illustrate the strength of the market's trend as measured by the number for new highs and lows.
The top indicator is the "New High Low Ratio" which combines the 10-day and 21 day moving average of the ratio of the number of 52-weeks highs to the sum of the number of 52-week highs and lows.
The formula is: 10-day (Red) and 21 day moving average (New Highs) / (New Highs + New Lows)
This indicator is not an overbought/oversold oscillator.
The trend of the indicator can be used as a bullish or bearish indicator. When the value is above 70% it is considered bullish and very bullish over 85%. When it is under 30% it is considered bearish and very bearish under 20%.
Significant market downtrends will often begin or accelerate when the indicators cross from above the 70% level to below the 70% level. Likewise market uptrends will often begin or accelerate when this indicator crosses from below the 30% level to above it. The 50% level on the 21 day moving average ( black ) is useful for longer term trend confirmation.
The Absolute Number of New 52-week Highs and Lows:
The second indicator displays the absolute number of new highs in green, and new lows in red.
The absolute number of new highs and lows should be used as a confirmation of the trend indication of the New High Low Ratio.
Because the ratio indicator is a percentage value calculated based on a denominator (total number of both new highs and lows) that can vary greatly in amount, it is important to also consider the absolute number of new high and lows.
For example, if the market has 20 new highs and 5 new lows the indicator will be 80%. This is the same ratio you'd have if there were 200 new highs and 50 new lows. In our markets of thousands of stocks, the ratio has more significance when there is a higher absolute number in the numerator. In this case, 200 new highs is a much stronger market than one with 20 new highs, even if the ratio indicator would result in the same 80% value.
As a general rule of thumb, a strong trend up or down will maintain a level of at least 100 new highs or lows respectively. You will see a thin blue line demarking these levels on the chart.
In practice, the ratio will initially turn up from a bearish condition and rise above the 30% level without achieving the 100 new highs level, but if it is a good trend, the level should eventually exceed 100 new highs
Hindenberg Omen
The Hindenburg Omen looks at the ratio of new 52-week highs and 52-week lows occurring in an uptrend in an attempt to determine the probability of a market crash or correction. Individual occurrences may not signal much but repeated occurrences can signal an increased likelihood of a correction. This indicator looks at the frequency of these occurrences over a 30-day moving period (light blue) and a 90-day moving period (dark blue). Higher values indicate a higher probability of a crash or correction.
Triple Play Trading gives you 3 unique indicators that enable you to:
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Real Motion Trading gives you unique indicators that enable you to:
The Real Motion Trading Course will teach you Trading Strategies for:
Slingshot Setups
We've identified 10 trading setups that we use to systematically identify low risk high reward trades. We call them "Slingshots" because they lead to quick bursts in price action, and they include more than just patterns - that's why we call them "Setups".
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Because these setups begin with daily charts, you can identify which stocks you are going to trade BEFORE the trading day begins. This allows you to create a short list of great trading opportunities and then you can turn your focus on trading the specific entry and exit rules rather than feeling trading anxiety or over-analyzing the market action.
Why We Love Slingshot Setups
The Russell 2000 is the best measure of the health of the U.S. economy. The ETF IWM is the financial instrument that represents the direction for this index. It is a leading indicator for how much follow through the other three major indices (the S&P 500 (SPY), NASDAQ 100 (QQQ) and the Dow Jones Industrial Average (DIA) might experience. This index represents 2000 small cap stocks, which manufacture and distribute goods and services primarily within the United States.
The Russell's are "Granddad!" With 2000 stocks in this index, companies such as La-Z-Boy, World Wrestling Foundation, Crocs, Frontline, and Smith and Wesson, represent the "meat" of the U.S. economy.
Granddad guides you to observe how the "meat" of the U.S. small cap companies is performing. This information, allows you to assess independently and effortlessly the pulse of the economy and the market. However, the IWM does not stand alone.
Grandma is the Retail sector (XRT); after all, she controls the family budget. As 70% of the Gross Domestic Product (GDP), Granny Retail tells us whether consumers are out there doing their part to stimulate the economy.
As an accurate measure of consumer confidence, the Retail sector must keep up with or lead the indices for sustained rallies. That makes Granddad and Grandma a perfect pair. If they are both performing well, most likely so is the overall market. If they are both feeling poorly, that is extremely helpful information. If they are going in opposite directions, take that as a sign of caution.
Granny Retail is in a "typical" mall within the United States. Stores such as Nordstrom's, GameStop, Wal-Mart, Costco, TJ Maxx and O'Reilly Automotive, XRT consider the shopping habits of most U.S. consumers.
Granddad and Grandma have four grownup kids.
Brother Regional Banks (KRE) is the Prodigal Son. He has periods of wastefulness coupled with periods of high productivity; KRE tells us the borrowing and saving habits of the American consumer.
Regional Banks is a key sibling in the Modern Family because he measures the health of the U.S. Regional Banks, where many local folks put their money. In the cartoon, KRE, the Prodigal Son stands in his office at a Regional Bank. He tends to be Bullish on America. He leans on his desk for support. He's always ready to ask for forgiveness just in case he cannot do right by his customers. His cat (or one might say KRE's alter ego), on the other hand, has unabashed confidence that whatever the Regional Banks do is always the right thing at the right time.
KRE is a reliable indicator of what the Federal Reserve might do regarding raising or lowering interest rates. It also helps market analysts calculate consumers saving and borrowing habits. Regional Banks has a Transgender sibling.
In the cartoon, Transportation (IYT) is transgender because IYT is a variable and ever-changing element of the US economy. In today's world, the nature of how goods and services move through the economy is shifting with e-commerce and the internet. Nonetheless, how IYT is behaving continues to be very important. Our Trans is an airplane pilot who is also skilled at truck driving and freight train conducting. He/she will bring you the "goods" via trains, planes and automobiles.
If we go back in time, Charles H. Dow, co-founder of Dow Jones and Company, observed the patterns of what occurred in the markets during the Industrial Revolution, when the U.S. was a growing power. The Dow Theory originated from his observations. The Transportation Index is a key component. Dow's first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a Bull market in industrials could not occur unless the railway average rallied as well, usually first.
We have come a long way since Dow's Theory on how goods and services move. However, the notion of how much and how fast goods move throughout the country remains a critical measurement of the U.S. economy.
Biotechnology (IBB) made the cut for good reasons. As the anointed "Big Brother" IBB is a great way to assess if, how and where money flows into the market.
Big Brother has many functions in the United States. He represents the pharmaceutical companies because of the power they have over us as consumers. Our current health and future well-being rely on Big Pharma. Big Brother wields power in Washington D.C. as well. All the IBB holdings appear in NASDAQ. Leading medical research requires speculative funds, and if speculative funds are coming into the market, that helps rounds out the Family.
IBB serves as a lead indicator of how much speculative money is flowing into the overall market. The more optimistic investors feel in general, the more they are willing to speculate in Biotechnology. The more they speculate, the better the outcome. If Big Brother is happy, that happiness becomes contagious. We typically see that spread to the rest of the Modern Family.
Finally, there's the precocious youngest sibling, Sister Semiconductors (SMH). The U.S. Semiconductor industry has been a major innovator among all U.S. industries.
The Semiconductor Industry is the newest industry among the Modern Family. Economists estimate that all productivity growth during the current decade will be IT (Information Technology) based by both using and producing IT industries. The basis of the very growth of humanity is IT. At its core is Semiconductors.
Per the analysis of data from the U.S. Bureau of Labor Statistics (BLS), the U.S. semiconductor industry now employs almost 250,000 workers directly and supports more than 1 million additional jobs throughout the broader U.S. economy. These supported jobs do not even include the millions of downstream electronics jobs in the U.S. that semiconductors enable.
Sister Semiconductors sits at her computer pondering ways to improve all aspects of human life. Her "pet" robot, named Chip, reminds us that automation, artificial intelligence and big data are now a part of our everyday existence.