The Record High Percent Index is a based on new highs and new lows. "New highs" refers to the number of stocks recording new 52-week highs. "New lows" refers to the number of stocks recording new 52-week lows. The index is derived by dividing the number of new highs by the number of new highs plus new lows. This ratio shows new highs relative to the total (new highs plus new lows). Like all breadth indicators, the Record High Percent Index is a measure of underlying strength or weakness in a particular index. Stockcharts.com provides the Record High Percent Index for the eight stock collections listed below.
Record High Percent Index = (New Highs / (New Highs + New Lows)) x 100
In general, a stock index is deemed strong (bullish) when the Record High Percent Index is above 50, which means new highs exceed new lows. Conversely, a stock index is deemed weak (bearish) when its Record High Percent Index is below 50, which means new lows exceed new highs. This indicator can move to its extremities and remain near its extremities when the underlying index is trending one way or the other. Readings consistently above 70 indicate a strong uptrend. Readings consistently below 30 indicate a strong downtrend. The index can also fluctuate from zero to one hundred during corrective periods or transitions.
Because the Record High Percent Index shows the percentage of new highs, this number can be deceiving. For example, an index could have 4 new highs and 1 new low. The Record High Percent would be (4/(4+1))*100 = 80. While this reading seems strong, four new highs is not that strong. Similarly, the Record High Percent Index based on stock indices with 100 or fewer stocks will reach extremes more often than broad based indices. The Record High Percent Index for Nasdaq 100, S&P 500 and Dow Industrials will have more volatility and noise than the Record High Percent Index for the S&P 500, Nasdaq and NYSE.
Chart 2 shows the Record High Percent Index for the Dow in red (bottom) and the Record High Percent Index for the NYSE in blue. Notice how $RHDOW hits extremes on a regular basis. This is because there are only 30 stocks and it is rather easily skewed. In contrast, $RHNYA is more stable and remains largely above 50 during the entire uptrend. The NYSE trades over 3000 stocks per day and is not easily skewed. In general, broader indices usually work better for breadth statistics.
Chart 3 shows the NY Composite with the NYSE Record High Percent Index ($RHNYA) in 2009. Here we can see the Record High Percent Index in a transition period, a corrective period and a strong uptrend. First, there is the transition period from downtrend to uptrend (bear to bull). The NY Composite just came off of an extended decline (October 2007 to March 2009). An extended advance is needed before $RHNYA can generate plenty of new highs. The NY Composite surged in March-April-May, but $RHNYA fluctuated between zero and 90 during this timeframe. There were two dips to the zero line in April and one in mid May. The period from mid May to early July is deemed a corrective period because $RHNYA formed higher lows. Notice how the index remained above zero and above the May low. The third period is the strong uptrend. After the June-July pullback, the index (red) surged to 100 and remained above 50 the rest of the year. In fact, it remained largely above 75 until the end of the year. This showed underlying strength.
The blue line in the indicator window shows the 21-day of the Record High Percent Index. 21 days covers roughly one month. Smoothing the index with a moving average will eliminate some of the extremes (above 90 or below 10). This moving average will also smooth the indicator and make it less volatile. Notice how the 21-day SMA moved above 50 in late April and remained above 50 the entire year. Even with the dips in May, June and July, the 21-day SMA held above 50 to show continued strength in new highs.
Chart 4 shows the Nasdaq with the Nasdaq Record High Percent Index (red) in 2007 and 2008. Here we can see the index transition from bullish to bearish and then move into a strong downtrend. Because the daily Record High Percent Index can be quite volatile, I am also showing its 21-day SMA (blue line). First, the 21-day SMA dipped below 25 in August (1). This occurred during what appeared to be a minor correction, but the indicator showed underlying weakness because new lows expanded. The second warning came as the Nasdaq hit a new high in late October 2007 and the index did not exceed 75 (2). $RHCOMPQ peaked a few weeks earlier to form a . The third and final straw occurred when the 21-day SMA moved below 50 in November and remained below 50 (3). This expansion of new lows showed underlying weakness in Nasdaq stocks.
How do we know when the 21-day SMA will move above/below 50 and remain above/below 50? We can never really be sure, but we can use other aspects of technical analysis to confirm or refute the indicator. The first two bearish signals in $RHCOMPQ indicated underlying weakness in Nasdaq stocks because new lows were expanding. After the November 2007 decline, the Nasdaq bounced in December and formed lower highs (red arrows). The index then broke support to reverse the uptrend. This support break confirmed weakness that was already present in $RHCOMPQ and its 21-day SMA. The 21-day SMA subsequently remained below 50 until April 2009.
New 52-week highs and new 52-week lows are considered lagging indicators. In other words, the market will change direction long before there is a significant shift in the number of new 52-week highs and the number of new 52-week lows. Because it takes at least 52 weeks to forge a new high or a new low, an extended move is required for a stock to record a 52-week milestone. There are plenty of new highs after an extended advance, just as there are plenty of new lows after an extended decline. New highs dry up when a stock index corrects after an extended advance. Some new lows will surface during a correction, but it takes an extended decline to generate a serious increase in new lows. Similarly, new lows dry up when a stock index bounces after an extended decline. Some new highs may surface during this bounce, but it takes an extended advance to generate a serious increase in new highs.
The Record High Percent Index is a breadth indicator specific to an underlying index. The Nasdaq 100 Record High Percent Index applies to the Nasdaq 100, the NYSE Record High Percent Index applies to the NY Composite and so on. Broad based indices, such as the Nasdaq and NYSE can be used as barometers for the "market". These Record High Percent Indexes are not as easily swayed as the indexes for the Dow, Nasdaq 100 or S&P 100. In general, the bulls have an edge when the Record High Percent Index for the Nasdaq and the NYSE are both above 50.
The examples above show the Record High Percent Index with a 21-day simple moving average. Chartists can experiment with different moving average lengths to fit their desired timeframe and trading/investing style (short-term, medium-term and long-term). Chart 5 shows the Nasdaq with its Record High Percent Index and its 21-day SMA in the first indicator window. The second indicator window shows the 63-day SMA, 125-day SMA and 250-day SMA. The actual Record High Percent Index is invisible on the second indicator window to focus on the moving averages.
SharpCharts users can plot the Record High Percent Index for eight stock collections including the S&P 500, TSX Composite and Dow. The full list is shown at the beginning of this article. In SharpCharts, the Record High Percent Index is plotted by using the "Price" indicator. It is often helpful the plot the index along with the indicator for easy reference. The Record High Percent Index can be plotted in an indicator window or in the main chart window. It can even be plotted behind the price plot for the stock index. In this example, the index is shown in the main window with the Record High Percent Index below in an indicator window. Here are the steps.