Saturday, December 31, 2016

Tracking Market Strength With Intraday New Highs and Lows

(This is the fifth post in a series covering innovative technical measures that I track during the trading day. Prior posts in the series are linked below.)

Traders are familiar with tracking the number of stocks making 52-week new highs and lows as a way of gauging the breadth of market strength and weakness.  If a market is getting stronger, we should see an expansion of shares making new highs and vice versa.  If that doesn't occur, it may be the case that what we're seeing is more sector rotation than true trending.

Above we see an adaptation of the new highs/lows concept for active traders.  Here we're looking at the number of stocks across all exchanges that are making fresh new highs minus  those making fresh lows for that trading day only.  (Raw data from e-Signal).  Because new highs and lows are defined over the course of the day session only, the statistic is a sensitive measure of intraday strength and weakness.

The chart above depicts the trading session for Friday, December 30, 2016.  Note how we started the day with new lows swamping new highs.  We had some drying up of new lows vs. highs early in the morning, leading to a bounce and a brief period in which new highs outnumbered lows.  This number quickly returned negative, however, and stayed that way for the great majority of the trading session.  

In a trending market, we'll see new highs outnumber new lows throughout the day session or vice versa.  Imagine a cumulative line of new highs minus lows throughout the day; this would trend during trend days.  If we see a mixed number of new highs and lows, we're much more likely to be in a rangebound, rotational environment.  The broad excess of new lows over highs early in the trading session was a useful early tell to trade the session in a mode of selling bounces.

Previous Posts in the Series:

Tracking Instantaneous Demand and Supply

Tracking Multiday Market Strength and Weakness

*   Tracking Market Breadth and Strength/Weakness

A Unique Application of VWAP to Gauge Market Strength