I wanted to take the time to update the latest New High – New Low (NH-NL) ratio chart which I follow from week to week on the MSW Index. Based on my research in 2005 and 2006, I have changed the level of bullish or positive signals to 60% from 80% with neutral now representing all readings between 0% and 60% and bearish or negative signals below 0%.

The chart in this post shows a graph that highlights the strength and weakness on the NH-NL ratio during 2006 and 2007. To calculate the percentage correctly, use this formula:

(New Highs – New Lows) / (New Highs + New Lows) * 100 = X%

For a further understanding of how I use the NH-NL ratio, read this post I made back on Tuesday, October 25th, 2005:
New High – New Low Ratio (NH-NL)

The weekly averages for the NH-NL Ratio (2007):
Saturday, January 6, 2007: 279-67, 61.27%
Saturday, January 13, 2007: 344-39, 79.63%
Saturday, January 20, 2007: 281-46, 71.87%
Saturday, January 27, 2007: 316-55, 70.35%
Saturday, February 3, 2007: 502-45, 83.55%

To View the numerical readings from 2006, visit this post:
New High – New Low Ratio

Here’s the latest NH-NL ratio chart with weekly numbers updated to the week prior to the Thanksgiving holiday. I excluded the short week so it wouldn’t skew the chart. Although the week ending on Saturday, November 18, 2006 had the highest average number of new highs (541) for the year, the strength calculation ranked it tenth in 2006 behind many of the readings from January and October. New highs were greater during the week of 11/13-11/17 but the strength was less than three of the weeks in October which saw the number of new lows 30%-50% lower. Both sets of numbers play an equal role in the calculation of this NH-NL strength ratio.

Yesterday saw a reading of 525-35 which equals an 87% rating but the readings were weaker earlier in the week so the total won�t make the top 10 (as long as today is quiet). In addition to the NH-NL chart, I wanted to post the chart of the number of stocks on the S&P 500 that are trading above their 50-d m.a. because it has slipped to its lowest level since August.

To calculate the percentage correctly, use this formula:
(New Highs � New Lows) / (New Highs + New Lows) * 100 = X%

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 – 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210
Saturday, August 19, 2006: 178-96
Saturday, August 26, 2006: 140-74
Saturday, September 2, 2006: 285-42
Saturday, September 9, 2006: 143-60
Saturday, September 16, 2006: 244-75
Saturday, September 23, 2006: 206-83
Saturday, September 30, 2006: 251-75
Saturday, October 7, 2006: 301-92
Saturday, October 14, 2006: 412-40
Saturday, October 21, 2006: 442-29
Saturday, October 28, 2006: 480-40
Saturday, November 4, 2006: 251-57
Saturday, November 11, 2006: 388-48
Saturday, November 18, 2006: 541-55 – most new highs in 2006 (weekly average)

Piranha

The NH-NL ratio surpassed its strongest weekly level since May 6, 2006 when it closed at 503-74. This was the tenth consecutive positive weekly ratio with new highs closing at 442 and new lows dropping below 30 for the first time in 2006. The weekly lows averaged 29 per day which gives us the lowest reading since the week ending July 30, 2005 when the market averaged exactly 28 new lows per day. The NH-NL ratio chart shows that last week gave us the highest reading (87.69%) since the week ending January 14, 2006 (87.97%). The past two weeks have spent time above the positive 80% calculation that I have explained on past blog entries (links below). The NH-NL ratio has gained strength for the past 10 weeks according to the number of new highs versus the number of new lows and is looking like a similar pattern to 2005.

Monday had a total of 636 new highs, the most new highs in one day since Monday, May 5, 2006 when the daily ratio closed at 745-38. The ratio continues to gain strength and individual leaders are moving higher (stocks on our MSW Index and the IBD 100) but many secondary indicators are suggesting that the market is still extended. The main secondary indicator that I follow is the number of stocks trading above their 50-day moving average on the S&P 500. It closed at 80.80% after reaching an intra-week high of 85.20%, the highest reading since the January 2006. The market didn’t peak for another four months after reaching the level above 80% in January and this is why the indicator remains secondary. When the NASDAQ finally turned, the percentage of stocks above their 50d- m.a. was closer to 65% in early May (it dropped below 50% the following week while the market took a plunge).

To calculate the percentage correctly, use this formula:
(New Highs – New Lows) / (New Highs + New Lows) * 100 = X%

Where do the Major Indexes stand in 2006?
NASDAQ: +6.21%
DOW: +11.99%
NYSE: +12.23%
S&P 500: +9.64%

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 – 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210
Saturday, August 19, 2006: 178-96
Saturday, August 26, 2006: 140-74
Saturday, September 2, 2006: 285-42
Saturday, September 9, 2006: 143-60
Saturday, September 16, 2006: 244-75
Saturday, September 23, 2006: 206-83
Saturday, September 30, 2006: 251-75
Saturday, October 7, 2006: 301-92
Saturday, October 14, 2006: 412-40
Saturday, October 21, 2006: 442-29 – This Week

Tuesday, September 19, 2006
NH-NL Ratio still Neutral

Monday, September 04, 2006
Looking at the Market through the NH-NL Ratio

Monday, August 14, 2006
New Highs and New lows telling a Story

Piranha

After a great response to the weekly market review I added on Friday, I felt it was necessary to update the NH-NL ratio chart to show how this indicator feels about the market. We have had five consecutive positive weeks for the first time since April 2006 but we are hovering in a neutral zone near 40% with a brief spike above 70% a couple weeks back. The month of April 2006 averaged 64% while the first week was in bullish territory above 80%, something we haven’t seen since.

I often get a question about the difficulty of this calculation to stay above 80% and I respond with the ratios from 2003 and 2004. Below is a sample of the data extracted from January 2004 when the ratio averaged 97% for the entire month. The readings were as follows (chart below):

Sunday, January 4, 2004: 892-10 (97.78%)
Sunday, January 11, 2004: 792-7 (98.25%)
Sunday, January 18, 2004: 896-6 (98.67%)
Sunday, January 25, 2004: 505-8 (96.88%)

Where do the Major Indexes stand in 2006?
NASDAQ: +1.38%
DOW: +7.81%
NYSE: +8.21%
S&P 500: +5.84%

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 – 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210
Saturday, August 19, 2006: 178-96
Saturday, August 26, 2006: 140-74
Saturday, September 2, 2006: 285-42
Saturday, September 9, 2006: 143-60
Saturday, September 16, 2006: 244-75 – This Week

Piranha

My first topic of discussion is the NH-NL ratio, something I ignored for the majority of the week. As you can see on the list below, we had our third consecutive positive week, the first time since late April and early May and we had the best ratio with the largest number of new highs since the week ending May 13, 2006. Every day was consistent this week without any one day skewing the numbers. The strength wasn’t overwhelming but it wasn’t weak either as the number of new lows fell to the lowest weekly average since the week ending April 1, 2006. The ratio percentage number ended at 74.31%, the highest reading since the week ending May 6, 2006 (74.36%). Notice the higher highs and higher lows on the chart.

Looking back at last year’s numbers, we can see that the entire month of September (2005) was positive with the monthly ratio coming in at 280-85. The largest weekly new highs average was 375 while the largest weekly new lows average was 157 (the final week of the month). The first week of October was positive but we then slipped into three consecutive negative weeks before heading back to positive territory for the next 28 weeks (starting November 5, 2006 and ending May 20, 2006). The phrase “Sell in May and go away” couldn’t have been more appropriate based on this real time data collected on MSW weekly screens. November through April are supposed to be the best months to invest according to historical data provided by the Stock Traders Almanac and this NH-NL ratio data over the past twelve months has proven it to be 100% correct!

As I have mentioned many times in the past, big time Wall Street fund managers and institutional traders go on vacation to the Hamptons, upstate lake side homes and international destinations. While these investors leave, they sell their weak holdings and have their staff sell anything that becomes weak while they are gone. They basically clean house and sell any investments that can’t survive while that are not at the helm. This results in the thin volume that we see year in and year out from June to August. When they get back in September, they continue to clean house and look to revamp their funds and close on a positive note, heading into the New Year. This is not rocket science; look at historical charts for the DOW and NASDAQ and you will see that September and October have provided many lows in the markets over the past few decades. More recently, it has happened in 2001, 2002, 2004 and 2005 (2006?).

Mentioned in the past and according to Elizabeth Thompson’s article ‘Gone away for the Summer? It’s Time to Come Back’, she states, “that the financial world encourages investments in the November through April period more so than in the May through October period.” She further states that January is the month that employees sign up for 401(k) plans while IRA’s have an April deadline which requires investors to place more money in their stock related retirement funds. This type of setup brings an influx of money to the table during the beginning of each year and naturally pushed prices higher before the flat summer months when they typically correct.

September is historically one of the worst performing months in American stock market history but it can also present an ideal opportunity to place positions on stocks that are showing excellent relative strength. Typically, these stocks go on to be market leaders and breakout after Halloween and into the New Year. November through February are some of the best performing months in Wall Street history but if you wait to place positions at the end of this range, you may be buying extended stocks that are poised to drop as the spring ends, creating losses in your portfolio. There are always exceptions to historical data and the rules so we want you to follow the daily and weekly action of the market before buying and selling. History is great but it doesn’t mean the market will always follow the script (if you know what I mean).

Another study suggests that the market will continue do trade the way it has traded for the first five months of the year. If this scenario holds true to 2006, we will be stuck in a sideways market for another four months. Regardless, I will be here researching the leaders and trends and will give you my best analysis outside of predictions and historical data. I feel that this historical data can help some investors realize that the market does work in predictable ways from a long term macro view.

Follow my three most important Indicators:
1. The price and volume of the major indexes (currently moving higher)
2. The action on the NH-NL ratio (3 positive weeks but lacking overwhelming strength)
3. The action among leading individual stocks (very solid week: 3.55% MSW Index gain)

Where do the Major Indexes stand in 2006?
NASDAQ: -0.55%
DOW: +6.97%
NYSE: +8.79%
S&P 500: +5.02%

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 – 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210
Saturday, August 19, 2006: 178-96
Saturday, August 26, 2006: 140-74
Saturday, September 2, 2006: 285-42 – This Week

New highs vs. new lows from last week:
Monday showed a ratio of 221-52
Tuesday showed a ratio of 260-59
Wednesday showed a ratio of 351-39
Thursday showed a ratio of 293-25
Friday showed a ratio of 299-35

Piranha