Wednesday, March 25, 2009

Stock Market New Highs and New Lows: Modifying the Standard Indicator


My recent post focused on a revised advance-decline indicator with interesting intraday applications. If you click on the above chart, you'll see another modified indicator: below each day's bar for March's S&P 500 Index (SPY), you'll see the number of stocks across all major indexes that made fresh 20-day highs (top number) and the number that made fresh 20-day lows (bottom number). Major props to the excellent Barchart site for these data.

Notice that, as we bottomed in the early portion of the month, the number of stocks registering fresh 20-day lows leveled out, with new lows peaking ahead of price. This is not an unusual pattern. As a market tops or bottoms, leading sectors begin to make their reverse moves, so that fewer stocks are making new highs at price peaks and fewer issues are registering new lows at price bottoms.

Also observe that, during this rally, new 20-day highs have expanded smartly. This tells us that a trend is intact: an increasing number of stocks are participating in the rally. As long as new highs or new lows are expanding, we can view pullbacks in new highs or lows as potential points to enter the trend on a swing basis (given that price is likely to top or bottom thereafter).

What is not often appreciated is that the new high/low data also have implications for intraday traders. Take yesterday's market (please). When we touched the previous day's high, as noted in my Twitter comment, only 1593 issues at that time had made new 20-day highs, down from over 2600 the day previous. This was an indication that the broad market was *not* gaining strength and that we were not likely to break out to the upside. Knowing whether new highs or lows are expanding can be quite helpful in gauging whether or not a possible breakout move is likely to turn into a trend.

The advantage of tracking 20-day highs and lows is that the data are much more sensitive than the standard 52-week new highs/lows typically quoted by news services. After a bear market such as we've had and the subsequent healthy rally, relatively few issues are making fresh 52 week highs *or* lows. By tracking new highs and lows for the past month, we can detect shorter-term shifts in market strength and weakness.

So let's add new highs/lows to the emerging daytrader analyst effort on Twitter. At key market junctures (when I'm at the screen and not working with traders), I will update the intraday status of new 20-day highs and lows. Let's see if that proves helpful for decision support. As always, subscription to the Twitter posts is free via RSS feed, or you can keep up with the last five tweets on the blog page.

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10 comments:

Stanislav said...

It's very interesting. I think, useful information for making trades using these numbers is reversal in extreme zone. We see, number of stocks in the bottom turn to 2486 from 2980, these numbers are extreme in whole distribution and if we apply any additional technical instruments, I think, it could be strong confirmation of reversal. Dr. Steenbarger, let's get acquainted, name's Stanislav, I read your materials concerning trading for a long time with great interest. I have a question for you personally, is it possible to write you to any private e-mail? Or you can send empty letter on berrr@mail.ru. Thank you!

MrGullible said...

Could you please leave the link to the chart?

energizer said...

priceless info from Dr Brett,the last months that i follow him and become another fan,he boost my trading thinking and knowledge,this is the way of knowledge a trader need to learn.thanks

JMcD said...

Other than your twitter, what's a good source for daily and/or intraday 20 day high/low data?

Thomas said...

Great chart with interesting way to use the info for intraday trading. I notice that on Fridays down day in up week, new lows was lowest of the week and the following Mon. was big up day. I don't know if that is reading to much into the data but presents some great ideas for back testing.

John Cook said...

Dr Did you pull those 20 High/Lows off e-signal or barchart.com?

Jonathan said...

Where do I find this information on 20 Day High/Lows on Barchart.com? Is it part of the paid subscription?

Brett Steenbarger, Ph.D. said...

Hi Stanislav,

My email address is listed in the section of the blog "About Me". Thanks--

Brett

Brett Steenbarger, Ph.D. said...

Hi JMcD,

The Barchart site has the data; excellent site--

Brett

Brett Steenbarger, Ph.D. said...

Hi All,

Yes, Barchart carries the 20-day highs as well as other market stats. It is by subscription.

Brett