Education & Information
Bullish Percent Charts
NASDAQ High-Low Index
Investors with short-term trading objectives should use this as one of their main timing indicators. We define short-term as 1 – 2 months, not day trading. This chart records the percent of stocks on the NASDAQ that are making new highs relative to those making new lows.
The calculation for this index is as follows:
- Add the total number of daily new highs and lows on the NASDAQ
- Divide the total by the number of new highs giving you the daily high-low index.
- Because this number can fluctuate greatly from day to day, a 10-day average is used to chart the NASDAQ High-Low Index. Do the above calculations for 10 days, add the total and divide by 10 to get the average.
For example, let’s assume the daily highs and lows on the NASDAQ were as follows:
| Lows | 159 | 362 | 301 | 174 | 214 | 187 | 110 | 71 | 68 | 47 |
| Highs | 34 | 56 | 44 | 35 | 49 | 35 | 44 | 35 | 49 | 35 |
| Totals | 193 | 418 | 345 | 209 | 263 | 222 | 154 | 106 | 117 | 82 |
| % of highs | .176 | .134 | .128 | .167 | .186 | .158 | .286 | .330 | .419 | .427 |
The above percentages add up to 2.411. Dividing this total by 10 results in .2411 or 24.11%. This is the percentage we are interested in charting. The next day we would do the calculation again by replacing the oldest day with the new daily highs and lows.
Important buy signals develop on this chart when the percentage drops below 30% then begins moving higher. This indicates the number of stocks on the NASADAQ making new highs is low relative to those making new lows. Such conditions exist when the market is near short-term lows. When this percentage begins to advance from low levels, the number of new highs relative to new lows on the NASDAQ is beginning to improve indicating the short-term direction of the market is turning up. At these times, short-term investors should take aggressive positions to profit from an advancing overall market.
Important sell signals develop on this chart when the percentage rises above 70% then begins moving lower. This indicates the number issues on the NASDAQ making new highs are high relative to those making new lows. Such conditions exist when the NASDAQ is at a short-term high. At these times, short-term investors should take a defensive approach to the overall market, protecting their portfolio. Those so inclined, can sell short at this time to profit from the expected decline in the overall market.
This indicator chart is recorded and interpreted the same way as the other bullish percent charts.
There are two levels of analysis on the NASDAQ High-Low Index.
- Direction
- Position
DIRECTION
- A rising percentage is recorded with Xs
- Xs indicate more issues making new highs relative to new lows on the NASDAQ
- Your short-term approach toward the NASDAQ is aggressive, attempting
to grow your portfolio
- A declining percentage is recorded with Os
- Os indicate more issues making new lows relative to those making new highs on the NASDAQ
- Our short-term approach toward the NASDAQ is defensive, protecting
your portfolio
POSITION
- Extremes readings are 70% and 30%
- Reversals from the extreme levels indicate short-term turning points
for the NYSE
- 70% indicates on a short-term basis there is a high-risk level for the NASDAQ
- A reversal down from 70% is a short-term sell signal for the NASDAQ
- Short-term investors should manage their portfolios defensively in this market (risk management)
- Aggressive investors should apply a short selling strategy to profit
from the expected decline in the NASDAQ.
- 30% indicates the short-term risk level is low for the NASDAQ
- A reversal up from below 30% is a short-term buy signal for the NASDAQ
- Short-term investors should manage their portfolios aggressively in this market
- Any short sales should be covered in this market on the NASDAQ
Although this indicator is most helpful to short-term oriented investors, long-term investors also should use this to help guide their decisions. When this index is at a high-risk level, even a long-term investor would want to become a little less aggressive as the NASDAQ is likely to decline over coming weeks, providing better prices to buy most stocks.
Ideally, the use of this indicator is best used in conjunction with the NASDAQ Percent Above 10-Week Average to get an accurate assessment of the short-term conditions in the NASDAQ.