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Stock Market Indicators

New High - New Low Index (NH-NL):

The NH-NL index tracks the number of market leaders, i.e., number of stocks that have reached new highs or lows on any given day for that year. The NH-NL measures the difference between new highs and new lows.

 

Trading rules for NH-NL:

1)If NH –NL reaches a lower peak, but the market reaches a newer high, it signifies a bearish divergence.
2)If NH –NL reaches a higher low, but the market reaches a newer low, it signifies a bullish divergence.
3)If NH –NL stays on a flat, it gives a sell signal.
4)If NH –NL rises on a flat day, it signals a bullish message and gives a buy signal.
5)If NH –NL has stayed negative for several months, but suddenly rises above its centerline, it shows that a bullish move is likely to begin. 

 

Traders’ Index and Other Indicators:

Trader's Index or TRIN is a leading indicator. It can show the major rallies and declines that are about to reverse. Tops and bottoms in TRIN are associated with excessive optimism and pessimism.

Over the years, TRIN has been able to maintain itself as one of the best market indicators. It measures the ratio of advancing and declining stocks and compares it to advancing to declining volume.

 

Trading rules for TRIN: 

1)When TRIN leaves its oversold zone, buy the stock and vice-versa.
2)When TRIN leaves its overbought zone, sell the stock and vice – versa.
3)The author states that TRIN works best when it is combined with the NH-NL. If TRIN reaches its oversold zone and NH-NL reaches a low, it signals that the downtrend is likely to continue and vice-versa.
4)If TRIN reaches its overbought zone but NH – NL reaches a new high, it signals that an uptrend is likely to continue.
5)When TRIN touches a lower peak than its previous high but the stock market reaches a new high, it is a sell signal.
6)When the stock market falls to a new low but TRIN falls less than it did in its previous decline, it is a buy signal.

 

Advance/Decline:

The A/D line can measure mass participation in upturns and downturns. A trend is likely to stay when the A/D line rises to a new high or low.

Traders should look for new highs and lows in the A/D line to predict price movements. To calculate the A/D for a day, we need to subtract the number of declining stocks with the number of advancing stocks.

 

Most Active Stocks (MAS):

The MAS indicator measures the advances and declines of 15 most actively traded stocks on NYSE.

MAS can show whether a market is currently bearish or bullish.

When the market is going one way and MAS goes the other way, then the market is betting on a reversal and vice-versa.

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