UPDATE: New High-New lowsUpdate to previous chart linked below Looking at a moving average of the NYSE New highs minus new lows. My thoughts in the first chart were that observing the prevailing trend of the moving average would give clues to the health of the market.
If the prevailing trend of New High-New Lows holds, the current pull back may be short lived. A break here similar to Sept will likely lead to a more significant pull back.
HIGN
New Highs - New Lows: SPYSomething I just started looking at, maybe it could add some clues as to whether this recent pullback and sharp rally are a part of a topping process or setting the stage for a new leg higher. The upper indicator is the 10 day MA of the New highs - new lows. I decided to use a ma of the underlying indicator to smooth out some of the spikes and to see if any trends develops.
Two recent examples to compare to that offer different outcomes:
2007 - during the topping process we saw a quick 12% pull back followed by a 15% rally to new highs. However the NH-NL moving average did not break the upper trend line. In the following three rallies on the way to the ultimate bottom the moving average did not pull above the trend line. It was not until March 09 after the market bottom that the trend broke to the upside. This set up a new trend that was developed off the NH-NL, which saw a higher count of NH-NL during each market rally.
2010 - The NH-NL bottom trend line was broke during the 2010 sell off. The first two rallies off the initial selloff stopped short of breaking the downward sloping trend. The first rally ultimately led to new lows, the 2nd rally set up a higher low that once the market pivoted from was able to break out of the downward trend. Similar to March 2009, breaking this trend set a nice new NH-NL upward sloping trend which also corresponded to higher highs.
2014 - The current NH-NL trend is similar the one in 2010 in that the bottom support trend was broken which led to a quick sell off. With current ~12% rally off the lows we are now approaching the downward trend. It would seem reasonable to see prices take a pause somewhere around here (202-204), but maybe we continue to march higher. Either way, I'll be watching to see how prices handle the next attempt to break the downward sloping trend line. Maybe the action around here will give a clue as to whether the current setup is similar to 2007 or 2010.
