NYSE Net New Highs Waning

03/14/06 08:27:21 AM

by Arthur Hill

Even thought NYSE Composite remains strong, net new highs on the NYSE are waning as fewer stocks participate in the advance.

Security: $NYA
Position: Sell

Subtracting 52-week lows from 52-week highs forms net new highs. The blue histogram is positive when new highs exceed new lows and negative when new lows exceed new highs. I also use a 10-day simple moving average (SMA) to smooth the data. This indicator oscillates above and below the zero line and it is possible to draw trendlines to identify breakouts and establish the trend in net new highs (see Figure 1).

FIGURE 1: NYSE COMPOSITE. Net new highs appears not to be as strong as they were earlier this year.

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

The blue histogram shows the daily readings and net new highs are not as strong as they were earlier this year. There was a big surge in January, a smaller surge in February, and just a blip in March. The NYSE Composite moved to a new high at the end of February, but net new highs failed to reach its January highs, and that is not a good sign. The lower high by net new highs and the higher high by the NYSE Composite makes for a negative divergence in the indicator. A similar negative divergence formed from July to September, which preceded the October decline (black trendlines).

The 10-day SMA has been trending higher since November, but that uptrend is now in jeopardy with a lower high and trendline break. The indicator moved higher for three months from May to July and began weakening in August with a trendline break and lower low. The indicator moved lower from August to October and broke trendline resistance in late November. The latest trendline break is challenging the current uptrend, and a move below the February low would put the indicator in a downtrend. Further gains in the index will be hard to come by with fewer stocks participating in the advance.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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NYSE Net New Highs Waning

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