Picture du Jour: Net new highs at critical juncture

By Prieur du Plessis, on January 31st, 2010 posted in: Investment, Markets, Money

Breadth indicators are useful tools to assess the inner workings of the market’s rallies or corrections, and these indicators are used to identify strength or weakness behind market moves, i.e. to assess how the bulls and the bears are exerting themselves. One such measure is discussed below.

Net new highs are calculated by subtracting the number of new 52-week lows from the number of new 52-week highs. March 6 marked an “internal bottom” when a large number of the stocks on the NYSE recorded new lows (whereas a “price bottom” was recorded on March 9). Net new highs have since improved markedly, but it would seem that the ratio is now close to falling below the zero line (i.e. when new lows will again exceed new highs).

A decline into negative territory would be bearish for the overall market as an uptrend cannot be sustained with net new lows.

Source: StockCharts.com

In case you missed this yesterday: Considering the short-term technical picture of the Nasdaq Composite Index, Adam Hewison (INO.com) provides a short analysis showing a rather negative downside break. Click here to access the presentation. (He also recently analyzed the Dow Jones Industrial Index and the S&P 500 Index. Click here and here.)

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