When the market rallies, are stocks actually breaking out to new highs, or is the rally shallow? The New Highs vs New Lows indicator answers this question by tracking how many stocks are making 52-week highs compared to 52-week lows. It is a simple yet powerful tool for gauging market strength and identifying potential turning points.
What is the New Highs vs New Lows Indicator?
This indicator counts the number of stocks reaching new 52-week highs and compares it to the number hitting new 52-week lows on any given day. It can be expressed as a simple difference (highs minus lows), a ratio (highs divided by lows), or tracked cumulatively over time.
Core principle: In a healthy bull market, new highs should consistently outnumber new lows. When new lows start expanding during a rally, it often signals trouble ahead.
Understanding the Indicator Variants
New Highs Minus New Lows (NH-NL)
The most common version simply subtracts new lows from new highs. Positive values indicate bullish conditions, while negative values suggest bearish conditions.
Example Reading
- New 52-week highs: 245
- New 52-week lows: 32
- NH-NL = 245 - 32 = +213 (bullish)
High-Low Ratio
Dividing new highs by new lows creates a ratio that is easier to compare across different market conditions. A ratio above 1 is bullish, below 1 is bearish.
Cumulative New Highs-New Lows Line
Similar to the Advance-Decline Line, this version adds each day's NH-NL value to a running total. It creates a line that trends up in bull markets and down in bear markets.
High-Low Index
This smoothed version applies a moving average (often 10-day) to the new highs data divided by the sum of new highs and new lows. Values above 50 are bullish, below 50 are bearish.
How to Interpret New Highs vs New Lows
Confirming Market Strength
When the market index is rising and new highs are expanding while new lows remain minimal, the uptrend is healthy and likely to continue.
Warning Signs
Watch for these red flags:
- New highs shrinking while the index makes new highs (bearish divergence)
- New lows expanding even as the market rebounds
- High-Low Index dropping below 50 during a rally
- Cumulative NH-NL line making lower highs while the index makes higher highs
Real World Warning Sign
In late 2021, the S&P 500 continued making new all-time highs through November and December. However, the number of NYSE stocks making new 52-week highs had peaked in February 2021 and was declining. Meanwhile, new 52-week lows were expanding. This divergence preceded the 2022 bear market.
Identifying Market Bottoms
At major market bottoms, you will typically see:
- An extreme spike in new lows (capitulation)
- New lows start shrinking even as prices test lows
- New highs begin expanding from very low levels
- NH-NL crosses back above zero
Trading Strategies Using NH-NL
Strategy 1: Trend Confirmation Filter
Only take long positions when the High-Low Index is above 50 and rising. This ensures you are trading with broad market support.
Strategy 2: Divergence Signals
Look for divergences between price and the cumulative NH-NL line. When the index makes new highs but the NH-NL line does not confirm, be cautious about new long positions and consider tightening stops.
Strategy 3: Extreme Readings
Extreme spikes in new lows (above 500-1000 on the NYSE) often mark panic selling and potential bottoms. These can be opportunities to look for reversal setups.
Extreme Reading Example
During the March 2020 COVID crash, NYSE new lows spiked above 1,000 on multiple days. The peak in new lows came on March 18, just five days before the market bottom. Traders watching NH-NL saw capitulation in real-time.
Key Thresholds to Watch
While context matters, here are general guidelines for NYSE data:
- New highs above 400: Very strong bullish breadth
- New highs 100-400: Healthy uptrend
- New highs below 100: Weakening breadth
- New lows above 100: Increasing bearish pressure
- New lows above 500: Panic selling, potential capitulation
Combining with Other Indicators
New Highs vs New Lows works best when combined with other breadth measures:
- Advance-Decline Line: Provides different perspective on participation
- Percentage above moving averages: Confirms breadth readings
- Volume indicators: Shows conviction behind moves
- VIX: Adds sentiment context to extreme readings
Pro tip: When new highs are expanding AND the advance-decline line is rising AND over 70% of stocks are above their 50-day moving average, you have a trifecta of bullish breadth. This confluence increases confidence in the uptrend.
Where to Find NH-NL Data
New highs and new lows data is widely available:
- WSJ Markets (daily table)
- Barchart.com (NYSE, NASDAQ data)
- StockCharts.com ($NYHL, $NAHL symbols)
- Finviz.com (screener shows stocks at 52-week highs/lows)
- Yahoo Finance market summary
Common Mistakes to Avoid
- Ignoring context: The same NH-NL reading can mean different things in different market environments
- Acting on one data point: Look for trends in the data, not single-day readings
- Expecting immediate reactions: Divergences can persist before resolving
- Forgetting sector rotation: Sometimes new lows in one sector are offset by new highs in another
Track Your Trades with Market Context
Pro Trader Dashboard helps you monitor your portfolio alongside market breadth indicators. Understand how your positions perform relative to overall market conditions and make better trading decisions.
Summary
The New Highs vs New Lows indicator is a straightforward but powerful tool for measuring market breadth. By tracking how many stocks are breaking out to new highs versus breaking down to new lows, you can confirm trend strength and spot potential reversals. Pay attention to divergences and extreme readings, but always use NH-NL in conjunction with other analysis tools for the best results.
Want to learn more breadth indicators? Read our guide on the McClellan Oscillator or explore market breadth analysis fundamentals.