The New Year started by giving the market the third lowest NH-NL Ratio rating since the start of 2007 with an adjusted average of -83%. Only the weeks ending on Saturday, November 24, 2007 (-84%) and Saturday, August 18, 2007 (-87% – the lowest in more than 5 years) were weaker. In contrast, 2006 ended on a positive note and extended its run with a decent opening in 2007; the prior New Year (05-06) did much of the same. (Complete NH-NL Data is at the bottom of this post)
We have not had a bullish reading (as noted in the legend on the chart – click for full view) since the week ending on Saturday, June 2, 2007. Last year (2007) ended with only half as many “very bullish” weeks as we witnessed in 2006.
*click the image for a larger view*
New lows topped 3,000 for the first time in many years during the week ending Saturday, November 10, 2007. This is the first reading of this type that I can find dating back to the 2002 data that I have stored on my computer.
The market gave us exactly 1,000 new lows last Friday, only the third time we reached or topped this number over the past couple of years.
So, what does all this confusing NH-NL Ratio data mean?
Well, the data of the past has actually guided us in and out of the market while it was trending but I have also noticed how the extremes have come precisely when the market is looking to reverse and move in the opposite direction. We have been getting many extremes over the past few weeks and months (including last Friday).
Are the current extreme levels telling us that this market has a bounce coming?
According to the charts, it does. We should see some type of a bounce considering that the NASDAQ reversed nicely to close the day Wednesday and the fact that other indicators are pointing for a reversal as well. The NASDAQ is at the lower end of its Bollinger Bands as shown on a chart below (the green band).
The market bottomed the last time I made a significant post about the NH-NL Ratio on August, 21, 2007 is a thread titled: New High New Low Ratio Sets New Low
Historical chart (1968-2007) here for the Lowest Hi-Low Differential in Nine Years
The number of S&P 500 stocks above their 50-day moving average is also starting to base in an area that has suggested a reversal is due as well. This indicator has been extremely accurate over the past 12-24 months so it is one I give some weight (at this time). Remember, secondary indicators can come in and out of favor based on the type of market we are traveling – it’s certainly an art rather than a science.
One of the most interesting charts I have viewed over the past few weeks is the tracking of the NASDAQ versus the number of stocks that are trading above their 200-d moving average. The number of stocks above their 200-day moving average is at its lowest level since the summer of 2004 and the second lowest since the 9-11 events.
This chart tells me one of two things: we really are headed for a bear market or a reversal is due. A short term bounce is very likely but I would not be surprised to see the market falter as we head into the summer months. The election will have something to do with this and the market will most likely not rally until a clear winner seems apparent.
NOTE: The market has started to fall in April during election years over the past few cycles.
This is all speculation but fun to analyze so continue to trade prices and volume of your individual stocks as most small and mid-caps don’t trend at the same time as the major indices. However, 75% of all stocks follow or lead the overall trend of the major indices during major cycles.
Weekly New High – New Low Ratio (NH-NL) for 2007:
Saturday, January 6, 2007: 279-67
Saturday, January 13, 2007: 344-39
Saturday, January 13, 2007: 281-46
Saturday, January 27, 2007: 316-55
Saturday, February 3, 2007: 502-45
Saturday, February 10, 2007: 558-53
Saturday, February 17, 2007: 428-48
Saturday, February 24, 2007: 556-42
Saturday, March 3, 2007: 187-130
Saturday, March 10, 2007: 96-125
Saturday, March 17, 2007: 114-145
Saturday, March 24, 2007: 284-53
Saturday, March 31, 2007: 227-68
Saturday, April 7, 2007: 328-49
Saturday, April 14, 2007: 406-74
Saturday, April 21, 2007: 539-53
Saturday, April 28, 2007: 522-65
Saturday, May 5, 2007: 418-86
Saturday, May 12, 2007: 387-72
Saturday, May 19, 2007: 367-129
Saturday, May 26, 2007: 428-73
Saturday, June 2, 2007: 535-63
Saturday, June 9, 2007: 291-80
Saturday, June 16, 2007: 271-116
Saturday, June 23, 2007: 326-104
Saturday, June 30, 2007: 180-146
Saturday, July 7, 2007: 438-97
Saturday, July 14, 2007: 492-152
Saturday, July 21, 2007: 426-217
Saturday, July 28, 2007: 142-572
Saturday, August 4, 2007: 85-529
Saturday, August 11, 2007: 168-524
Saturday, August 18, 2007: 41-590
Saturday, August 25, 2007: 43-76
Saturday, September 1, 2007: 59-74
Saturday, September 8, 2007: 75-67
Saturday, September 15, 2007: 109-151
Saturday, September 22, 2007: 261-85
Saturday, September 29, 2007: 288-124
Saturday, October 6, 2007: 374-71
Saturday, October 13, 2007: 433-76
Saturday, October 20, 2007: 209-228
Saturday, October 27, 2007: 211-245
Saturday, November 3, 2007: 305-272
Saturday, November 10, 2007: 167-610
Saturday, November 17, 2007: 64-406
Saturday, November 24, 2007: 44-494
Saturday, December 1, 2007: 112-306
Saturday, December 8, 2007: 142-211
Saturday, December 15, 2007: 124-228
Saturday, December 22, 2007: 87-432
Saturday, December 29, 2007: 119-144
Weekly New High – New Low Ratio (NH-NL) for 2008:
Saturday, January 5, 2007: 14-151
Very astute analysis Chris. I totally agree with you right down to the observation of the market mood in an election year. I think we are at a bottom and not a bear market due to Ben Bernanke’s qualified leadership. As usual, thank you for you valuable insight, it is appreciated.
good post about hi low.look at a chart of hi low and the nas and you will see the nov bounce in the nas was on a small amount of stocks moving .we are due for a bounce then sell the rally .the monthy roc and rsi are in bad shape .if you want i will post a few charts in other words its a punt