Today I want to look at and track our New High charts slightly differently. We are using a simple moving average to be our momentum indicator which means each new day we loose the bar from 6 days ago (Call it Bar-5) from the average [imagine a zero base counting system where today is bar-0]. In order to keep the average at the same 5 day moving average value we must reach the same value at the today’s close as Bar-5’s close. In this case for the NYSE 52 Week New Highs our Bar-5 was 129, we must meet 129 to keep the average at its current 143. If we exceed Bar-5 at close the average will be higher (Bullish) or if we are lower the average will be lower (Bearish). Pretty simple. I like to work the averages like integers so my magic numbers calculate the closing requirements to make a whole integer change. On the chart below a close today of New Highs above 134 will tick the average to 144 or greater, a close below 124 will tick the average down to 142 or lower. You can see Bar-5 sandwiched in between these lines.
Looking at Bar-5’s intraday 30 minute chart looks like this:
That opening 30 minutes is a huge chunk of the New High value. I haven’t run real stats yet but opening 30 minute new high bars run close to 50% of the days total on most days. On the 30th the new highs after 30 minutes were 58 and the total for the day ended at 129, the opening 30 minutes was 45% of the days total. That relationship seems to hold across most of the days.
Since we know we have to replace this bar in our moving average for today I will track today’s 30 minute chart against this Bar-5 chart. We will either be ahead or behind as we progress through the day. At 10:00 am I might post NHs: 56 -2 (0) which should be read that at 10am we are two new highs behind our Bar-5. At 10:30 am I might post NHs: NHs: 66 –4 (-2) indicating that we are tracking 4 NHs behind and momentum is gaining in the negative direction. Of course in this market most likely will be in the positive side of momentum if we are tracking above the Bar-5’s new highs.
Why are we doing this? We are looking for divergence, where pricing is running to new highs but the new highs are tracking below the average. This should be bearish and indicate that a market turn might be ahead. Yesterday we had the opposite, we had price weakness during the day but the NH indicator kept chugging along tracking ahead of its bar-5 pace car indicating that price should return and it did. We are also looking for confirmation that we are on the right side of the trade.
It is very simple, but somehow in explaining becomes more complicated that it sounds. If you need me to clarify or you have any questions you can email me: redliontrader@gmail.com or IM me during the day with your questions.
The Russell new highs
I have added the Russell 2000 new highs to my screens. I wrote some about this yesterday. It is interesting to note that unlike the NYSE, the R2K is showing some momentum weakening.
The R2K NHs Bar-5 (how is that for code) is pretty tall and requires that the R2K NHs close greater than 106 today to maintain bullish momentum, or below 96 to turn that 5 day moving average downward. I will track that but not post about it unless I see some real weakness or strength.
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