New High/New Low Confirmations of Price Trends in the Stock Market
June 14, 2009 by admin · Leave a Comment
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.
New Highs and New Lows
June 6, 2009 by admin · Leave a Comment
Another indicator reflects market breadth, a measure of the true internal strength (or weakness) of the stock market. nus is the new high/new low indicator, including various derivatives of the related data. The number of issues making new highs, measured on either a daily or a weekly basis, is the number that reach new 52-week highs in price at any time on a given day or, for weekly-based readings, at some point during the week. This would be a price level higher than any level recorded in the previous 52 weeks. The number of issues falling to new lows refers to the number of issues whose prices have declined to their lowest level in the most recent 52 weeks.
It goes without saying that it is more positive when large numbers of issues advance to new highs than when the numbers of stocks in rising trends diminish. It is more negative when large numbers of issues keep falling to new lows than when increasing numbers of stocks find support, perhaps beginning new uptrends.