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

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We witnessed our second major distribution day as the DOW was down 2.6% on volume 40% larger than the prior trading day. The NASDAQ was down 2.6% on volume 15% larger than Thursday.

It was the worst selloff for the NASDAQ since February and the largest for the DOW since August. Volume surged across all major indexes but do keep in mind that it was options expiration day.

Technically speaking, we now have 4 distribution days for the NASDAQ and 3 for the DOW over the past month. It’s now time to start focusing big-time on the market leaders to see where they are going to take this market. If they start to roll over, you better be quick to take profits and even quicker to take losses.

Here’s what I had to say last Thursday, October 11, 2007 (see the charts in this link as well: Distribution Day)

The number of stocks above their 50-day moving averages crossed above the overbought level of 80 last week and we saw our first major sell-off distribution day yesterday. This doesn’t mean you must rush today to sell all of your holdings but do understand that the next sell-off is not far from happening. Study the chart below and follow the purple line to see where and when the market had peaks and valleys as related to the number of stocks on the S&P 500 above or below their respective 50-day moving averages.

The markets flashed a heavy distribution day Thursday as the NASDAQ was down 1.4% on volume 60% larger than the previous day. This was the largest showing of volume in two months and is not healthy because it was pure distribution. It was only the second distribution day over the past month so we can’t call this a bear run but please be on the lookout for a possible correction of 5%-10%. Technology stocks led the decline as BIDU gave back 10% of its amazing run.