[isatrader]

Can you educate me about the 52 week new high. From looking at the 52 week high being above it's 50 day moving average, I would say everything is bullish.

"MacNeil Curry, Head of Global Technical Strategy at Bank of America Merrill Lynch," sees the 52-week high differently.

"If you look at new 52-week highs, that has slowly been declining," says Curry. "If you look at the percent of stocks in the New York Stock Exchange trading above their 200-day [moving average], that is starting to decline." While that in and of itself doesn't mean a correction will occur, it increases its probability, says Curry." http://finance.yahoo.com/blogs/talking-n...10397.html

I appreciate insights on how to interpret the 52-week highs.

Hi Jim, the 52 week highs has been decreasing over the last few months since October, when it had a very strong surge to near it's highs of the year, which were set in January, and yesterday the new highs reading was only 62, compared to the new lows reading of 42. See below chart - the grey area is new highs, and the red area is new lows.

   

When the new highs reading gets below 100 (blue line), it then enters what I call neutral territory, as the amount of new lows tends to stay below 100 during an uptrend except when there is corrections. So when new highs drops below 100 it gives the news lows a chance to overtake the new highs, as you can see on the above chart in June and August, and the market corrects. And hence currently with only 62 new highs and 42 new lows yesterday, there is a chance that the current correction could worsen, but on the flip side of that it can also be a great time to buy and hence why I refer to it as neutral territory, as unless the new lows spike strongly above the new highs then the trend will likely resume.

The next chart that I post is the 5 day total of the US market New Highs minus the New Highs. So it gives a slightly different perspective, as it's a combined chart of the new highs and new lows, and shows a weekly view of what's going on in the whole US market. And because it's a combined chart, it also has zero line, which is the point where the bears overtake the bulls if it falls below that, as you can see in the brief spikes down in Jun and August.

   

Currently, it's the lowest it's been for a few months, but other than that it's still well above it's zero line for the time being. So I would say it's giving a warning, but unless it moves below the zero line the bulls are still in control.

The third chart that post each week is the Cumulative New Highs minus the New Lows in the NYSE, which I've setup with a 50 day simple MA for a signal line. So when it's above it's rising 50 day MA then it's bullish, and when it's below it's falling 50 day MA then it's bearish.

   

The two indicators at the bottom are setup in the same way as the "Momentum Index (MI)" on the Advance Decline line charts that is explained in the book. Basically, the top indicator is a simple 50 day MA of the New Highs minis the New Lows data, and crosses above and below the zero line are the signals. And the bottom indicator is setup the same as the Momentum Index and is a simple 200 day MA of the New Highs minis the New Lows data, and crosses above and below the zero line are the signals.

So currently as you can see, the 50 day MI recovered recently and made a new high above it's September high and is well above it's zero line currently. Whereas the 200 Day MI has been going sideways for most of the last six months or so, and recently started to decline a little, although it's a long way above it's zero line. And hence the cumulative chart doesn't suggest any major warning signs currently, just a slight loss of momentum in the longer term.

Overall, the short term 1st chart is in Neutral territory, the 2nd more medium term chart is in Neutral+ territory and the long term term cumulative chart is still in Bull territory imo.

There are however warning signs in the other breadth indicators currently like the Advance Decline line and the moving average breadth charts, so you need to access them as a whole and decide what the majority is telling you.

I hope that helps you understand the various New Highs New Lows charts that I post each week.

[Update: 12/12/13] Today saw the 52 week New Lows figure jump to 105 compared to only 32 New Highs. So the short term for the New Highs New Lows has now moved into Bear Alert status. I will do a full update at the weekend.