New High/New Low Confirmations of Price Trends in the Stock Market

We have already reviewed concepts relating to confirmation and non-confirmation of price advance and decline by indicators that measure market momentum, such as rate of change measurements. Among these are concepts related to positive divergence and negative divergence, based on the relationships between momentum and price movement.
Concepts related to confirmation, non-confirmation, positive divergence, and negative divergence can be related as weU to the relationship between external price strength and measures of the internal strength of the stock market. For example, if the number of stocks that reach new highs expands with gains in market indices, we can think of this as a positive confirmation of market advance: Internal strength measurements are confirming extemal strength measurements. However, if the number of issues making new highs does not keep pace with gains in the market averages, internal strength can be thought of as underperforming the extemal stock market. Negative breadth divergences are taking place, a warning of probable trouble down the road.
Conversely, if price levels remain down trended but fewer issues fall to new lows along with weighted price indices, this divergence could be evidence of internal strength building in the stock market as external indicators continue to weaken. Such conditions reflect positive breadth divergences, situations in which more stocks are finding support even within the context of declining price averages, usually a bullish portent.