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NASDAQ High/Low Logic Index
Typically, when the stock market makes a major bottom, very few stocks are making new 52-week highs. Also, when a bull market advance is in full swing, typically, very few stocks are making new 52-week lows. Finally, when the stock market begins to form a major top, there is generally a lot of “churning,” during which time many stocks make new highs at the same time that many other stocks are making new lows.
The High/Low Logic Index was originated by Norman Fosback, using weekly NYSE data, to take advantage of these trends. His method is to take the lower of NYSE weekly new highs and weekly new lows and then divide the lower of these two numbers by the total number of issues traded. The theory behind this indicator is simply that low readings are considered bullish and high readings are considered bearish.
Low Readings
Low readings occur when there are either very few new highs or very few new lows. Historically, the market is generally in little danger of a major decline as long as there are few stocks making new lows. Conversely, when the number of new highs shrinks to a very low level, this has often been bullish also, as it indicates that a major sell off is reaching a climax and that a market reversal to the upside may be imminent.
High Readings
Historically, when the stock market begins to top out, there is a period of churning, or prolonged distribution, before the bulk of the decline gets underway. Thus there is usually a period within this timeframe when many stocks are making new highs at the same time that many other stocks are making new lows. The High/Low Logic Index can help to identify such periods. When there are a lot of both new highs and new lows, the High/Low Logic Index will rise to very high levels.
An updated version of this indicator using the NASDAQ instead of the NYSE works as follows. Each day, take the lower of the following two numbers:
Daily NASDAQ New Highs
Daily NASDAQ New Lows
Then divide the lower of the two values by the total number of NASDAQ issues traded, to arrive at the daily value. To smooth out daily fluctuations it is best to look at a 10-day moving average of the daily readings. Now consider the following numbers:
· As a benchmark, please note that since 1988, the average 6-month return for the NASDAQ Composite has been +7.2%.
· When the 10-day NASDAQ High/Low Logic Index has exceeded 2.1%, the NASDAQ Composite has declined –3% on average in the subsequent six months. The best bearish signals occurred in May and July of 1990, July of 1998, March of 2000, July and August of 2001 and May 2002.
· On the other side of the coin, when the 10-day average has fallen to 0.40% or below, the NASDAQ Composite has registered an average advance of 16% in the subsequent six months.
Even more dramatically, when the 10-day moving average falls to 0.15% or below, the average subsequent six-month gain was +37%. These extremely bullish reading occurred in:
October 1990 Nasdaq first declines then stands 50% higher six months later
September 1998 Nasdaq advances 53% in next six months
October 1998 Nasdaq advances 53% in next six months
June 2003 Nasdaq advances 22% in next six months
In a nutshell, investors should keep a wary eye on the stock market when the Nasdaq High/Low Logic Index reaches or exceeds 2.10%. At that point, a lot of stocks will already be breaking down, so investors should watch for the major market averages to start breaking below their longer-term moving averages, as a sign of a stock market ready to break sharply to the downside.
Conversely, when the Nasdaq High/Low Logic Index drops below 0.40%, investors should look for the market to be higher six months later. And the further the indicator drops below 0.40%, the more bullish the implications. A 10-day reading of 0.15% or less should be considered a major buying opportunity.
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狗仔卡
发表于 2011-10-18 05:00 AM
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发表于 2011-10-19 08:37 AM
