Monday, August 04, 2014

Using Intraday Breadth to Gauge Breakouts and Fakeouts

If you click on the chart above, you will see 15-minute bars for the ES futures contract for the day trading session, 8/4/14.  At the top of each bar is the number of stocks closing that period at day session highs.  At the bottom of each bar is the number of stocks closing that period at day session lows.  This includes all U.S. stocks (NYSE, NASDAQ, etc.) and the numbers represent new highs or lows *just for the day session*.

Notice how we opened with weakness despite being up from Friday's close.  Note also how the upside breakout from the day's range to that point (at the 13:30 ET bar) was accompanied by a meaningful expansion of new highs and contraction of new lows such that new highs now led new lows on the day.

For the remainder of the day, new highs expanded, new lows contracted, and of course new highs outnumbered new lows.  (Chart was created manually from e-Signal data).

Sometimes the market averages can move higher or lower, with the moves dominated by a relative handful of highly-weighted large cap stocks.  Other times, the market averages can move to fresh highs or lows and the broad market fully participates.  The intraday new high/new low numbers nicely capture broad market participation during moves--and were helpful in validating the midday upside breakout.

Further Reading:  Identifying Trend Days With Intraday Highs and Lows