New highs versus new lows flash green for NDX and SPX

Key points

• Sustainable bull markets require participation among a broad array of individual stocks
• One way to monitor participation is in the number of stocks making new 52-week highs versus new 52-week lows
• Both the Nasdaq 100 and S&P 500 indexes are presently showing strong high/low numbers

The Nasdaq High/Low Ratio flashes green

This breadth ratio is constructed from the New High / New Low Ratio. New highs are the number of NASDAQ issues that closed at a new 52-week high today. New lows are the number of NASDAQ issues that reached a new 52-week low as of today's close. It is expressed as the number of issues that closed at a new high as a percentage of the total (we also present the ratio chart for the Nasdaq).

For example, on any given day, if there were 100 issues which closed at a new high and 30 which closed at a new low, then the new high percentage would be:

100 / (100 + 30) = 100 / 130 = 77%

The ratio can gyrate wildly from day to day, so it's often useful to plot a moving average. While this is generally viewed as an overbought/oversold indicator, there are other ways to interpret the data.

The chart below highlights all dates when the 50-day moving average of the Nasdaq High/Low Ratio crossed above 0.56. The most recent signal occurred on 2024-10-15.

The table below displays subsequent Nasdaq 100 performance on a signal-by-signal basis.

The table below summarizes subsequent performance for the Nasdaq 100 Index.

This signal should not be used as an automatic trading system. Still, it can alert momentum investors that a decisive move will likely follow through to the upside.

The SPY Net High-Low % indicator flashes a similar signal

This indicator is similar to the one highlighted above but uses the constituent stocks of ticker SPDR Trust ETF (ticker SPY) instead of the Nasdaq 100 Index and a slightly different calculation to highlight times when market momentum is strong and likely to follow through to the upside. This indicator shows the net percentage of SPY securities trading at a 52-week high minus the percentage trading at a 52-week low.

The chart below highlights those dates when the indicator value crossed above 19% for the first time in nine months. The most recent signal occurred on 2024-10-15.

The table below displays subsequent SPY performance on a signal-by-signal basis.

The table below summarizes the subsequent performance for ticker SPY.

What the research tells us…

It's almost getting a little "too easy" for stock market investors to make money. Just get in, wait another week or month, and count your compounding profits. That said, momentum is a real thing in the stock market. When the market anticipates a better economic environment and thus higher corporate profits, the major indexes run to new highs - AND, most importantly - a large percentage of individual stocks also participate. The two indicators above strongly suggest that this is the environment we are in at present. While that does not guarantee higher prices "this time," history suggests that that is the way to bet.