My NYSE new highs indicator continues to show weakening in the markets with some downward momentum. I have annotated today’s picture to show you what I am looking at. Starting on July 9th you can see how the NHs stair stepped upward making 4 days of higher highs skipping a day and then making 3 more days of higher NHs and finally topping out on August 3rd. On August 7th we issued a paper trading buy signal to go short (we used TZA long), we now need to figure out how to get out of the trade and are looking for momentum up change in the NHs. Our August 7th short was based on the SPX making a new high, but the NYSE NHs not making a new high, a divergence between index action and underlying broadmarket action.
Our magic numbers for today sit at 145 and under keeps downward momentum in place, 155 and higher will switch the 5day to a positive slope. A value in between will put the indicator in neutral. I will not be in the traders room today so for those wanting to keep track intraday, someone might post the NYSE NHs. Remember you HAVE to use the TradeStation NHs values ($W52WHN). That first 30 minutes will give you a hint of which direction we will head today. To break the 145 number the opening 30 minutes NYSE NHs should be 58 and above. Anything under that and the odds are seriously in doubt.
We are looking for a change in today’s sentiment that will drive the markets to a new price high. An increase in the number of stocks making new highs and follow through on the next day lets us know that buyers are willing to buy stocks that are at their 52 week highs and push them higher. New highs beget new highs and build up momentum. Look at that July 9th build up!
The question I am working out now is can we “front run” the indicator. Can we sense in the middle of the day sentiment change and take advantage of it? Here is my 30 minute chart of NYSE NHs:
Let me explain the chart. The bars are the NHs symbol $52WHN from TradeStation. The light blue and yellow curves above the bars are the 5day and 3day profiles, that is the values of the same bars from the last 3 days averaged and the last 5 days averaged. The indicator on the bottom of the page is the percentage above and below the 3 and 5 day profiles. Clear?
Look at August 7th. That was unemployment Friday where we had that great opening. Our first 30 minute bar was strong, but not as strong as the preceding 3 and 5 day averages but strength did build and after the first two hours we were tracking above the 3/5 profile but then slowly drifted away. On the bottom indicator you can see the momentum swing from positive to negative.
On Monday the 10th we had morning positive momentum and then lost ground again in the afternoon. Yesterday we saw a change in the momentum. We opened weak and then gained in the afternoon. Should this have been our cover signal? The great thing about paper trading is you get to experiment. We will let today run and see how it goes. I wanted to let you see what I am looking at. The goal is to figure out the best timing for this indicator and I am sure we will have a lot of starts and stops.
Zweig today.
Here is the Zweig Panel. The last few days have worked the Zweig away from its overbought condition down into neutral. Everyone is waiting for a new bull leg and a run up from the 50 level is possible like the May 13th run visible on the charts. Maybe one or two days of weakness?
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