A bullish expansion in new highs for NYSE issues

Key points:

• The spread between 52-week highs and lows on the NYSE shifted to a favorable profile
• Annual highs outpacing annual lows is indicative of a bullish stock market backdrop
• Several indexes triggered buy signals when their respective spreads turned positive

The 52-week high-low spread signals an advantageous environment for stocks

Monitoring the difference between 52-week highs and lows is a frequently observed and critical indicator for assessing market breadth, making it an integral part of my breadth composites. Yet, when employed as an individual measure, I find it beneficial to apply a moving average to temper the fluctuations in the spread.

Last week, the 30-day moving average for the spread between 52-week highs and lows on the NYSE crossed above zero, generating a bullish market breadth signal.

With the NYSE exchange joining several indexes on a 52-week high-low spread buy signal, the weight of the evidence continues to support a bullish backdrop for stocks. 

Similar 52-week high-low spread signals were indicative of a bullish backdrop

Whenever the 30-day moving average spread between 52-week highs and lows on the NYSE rose above zero, the median return for the S&P 500 exceeded the median return over the study period across all time horizons. 

The results over the six- and twelve-month periods were especially favorable, suggesting a trend environment more indicative of bull than bear markets. 

The 52-week high-low spread indicator as a risk-on or risk-off system 

The system generates a buy signal when the 30-day moving average for the 52-week high-low spread exceeds zero. Conversely, the model registers a sell signal when the indicator falls below zero.

Except for the Dotcom bust, the NYSE 52-week high-low spread equity curve has historically demonstrated a consistent upward path with limited drawdowns. 

The 2000-02 period was unusual in that NYSE 52-week highs expanded relative to lows for most of the bear market as Technology stocks negatively impacted the S&P 500. 

Signals triggered across a broad and diverse group of stocks

The 52-week high-low system can be applied to any exchange or index data series. However, I use slightly different parameters for the moving average and buy/sell thresholds. 

The S&P 500 generated its third buy signal since the market low in October 2022. 

The erratic price movements witnessed in the Russell 2000 over the past few years have posed a formidable challenge for a system such as this.

This chart contains the 52-week high-low spread for over 9,000 securities listed on all exchanges in the U.S. Today's shift to positive territory will trigger a new buy signal at the close of trading.

What the research tells us...

Situational awareness is a term that refers to a trader's ability to understand and interpret the current market conditions. By having a solid grasp on the general market backdrop, a trader is better equipped to make more informed decisions and adjust their portfolio exposure levels in response to changing market dynamics. The current prevalence of 52-week highs over lows on the NYSE and various indexes creates an advantageous climate for stock traders. That's especially the case for swing or breakout traders, as they have a tailwind at their back.