Sunday, June 10, 2007

Short-Term Stock Market Trends and Intraday New Highs and Lows

In my recent post, I illustrated intermediate-term market patterns with 20-day new high/new low data. Above we see 60-minute new highs and new lows among a basket of 40 stocks evenly divided across eight S&P 500 sectors: Materials, Industrials, Consumer Discretionary, Consumer Staples, Energy, Health Care, Financial, and Technology. These 60-minute new highs/lows are updated every 5 minutes during the trading day. The pink line plots the difference between new highs and new lows vs the S&P 500 Index (SPY; blue line) for a bearish day (Thursday) and then a bullish rebound (Friday).

You can see how the levels of new highs minus lows identify the falling market, the transitional period in the middle, and then the bullish thrust. The key is tracking the proportion of time that the new highs/lows are above or below the zero line. In falling markets, we'll see readings hitting -30 and a majority of readings below zero. In rising markets, we see the reverse. It's when the new highs/lows oscillate around the zero level with a preponderance of readings between +20 and -20 that we see consolidation/transitional periods.

The new high/low measure is also helpful in identifying breakouts from ranges--we want to see readings above +20 and below -20 on sustainable breakouts--and is useful in identifying bounces in bearish trends and dips in bullish moves that will not be sustained (readings between +20 and -20 and often within +10 and -10).

The above data came straight from my real time feed (RealTick) and were archived and charted in Excel. Alternatively, a trader could create a basket of stocks within a screening program such as Trade Ideas and track new highs/lows in real time. Readers interested in the specific stocks that I utilize in my basket can check out my "Tracking the Trend" post to the Trader Performance page of my personal site, which will be uploaded later today.


Anticipating Market Turns With Intraday New Highs and Lows