nh nl description

NEW HIGHS / NEW LOWS RATIO

APPLICABLE TIME FRAME(S):

SHORT / INTERMEDIATE

UPDATE SCHEDULE:

Each weekday night by 5:00 PM EST

EXPLANATION:

This is a breadth ratio constructed from New High / New Low Ratio. New highs are the number of NYSE issues that closed at a new 52-week high today. New lows are the number of NYSE issues that reached a new 52-week low as of today's close. It is expressed as the number of issues that closed at a new high as a percentage of the total (we also present the ratio chart for the Nasdaq). For example, on any given day, if there were 100 issues which closed at a new high 30 which closed at a new low, then the new high percentage would be:

100 / (100 + 30) = 100 / 130 = 77%

The ratio is observed on a 5-, 10- and 21-day moving average basis in order to smooth out extreme day-to-day fluctuations and focus on the most recent two-week period.

GUIDELINES:

This indicator can be effectively used to approximate overbought / oversold conditions. When the ratio reaches one of the extremes, caution is warranted when trading with the current trend. For example, if the trend is up and the NH/NL ratio reaches .90 on a 10-day average basis, then there is a high probability of at least a short-term retracement.

Overbought/oversold indicators such as this one are most effective when giving contra-trend signals. When we are in a clear long-term downtrend and this indicator becomes overbought, then it is an effective sell signal. Conversely, if we are in a sustained uptrend and the indicator becomes oversold, then it suggests that an upside reversal may be forthcoming.

ADDITIONAL RESOURCES:

New York Stock Exchange (www.nyse.com)