Why are Net New Highs Important?
Net New Highs is a simple breadth indicator derived by subtracting the new lows from new highs. "New lows" is the number of stocks recording new 52-week lows. "New highs" is the number of stock making new 52-week highs. This indicator provides an immediate score for internal strength or weakness in the market
The interpretation of Net New Highs indicator is as follows:
- A stock index is considered (bullish) when Net New Highs is positive, which means new highs exceed new lows. Conversely, a stock index is weak (bearish) when Net New Highs is negative, which means new lows exceed new highs.
- The level of Net New Highs represents a magnitude of bullish or bearishness in an index and its value largely depends on how many stocks are accommodated in the index. Strong uptrend prevails when the net new highs are continuously above +100 and strong downturn occurs when the net new highs are below -100.
Charts: Upper chart: Nasdaq Composite Index price chart. Lower chart: Nasdaq Composite Index Net New Highs.
The procedure to calculate Net New Highs and Cumulative Net New Highs is described below:
Net New Highs = New Highs - New Lows
Cumulative Net New Highs = Prior Cumulative Net New Highs + Current Net New Highs
Net new highs can be computed by subtracting new lows from new highs. As the name indicates cumulative net new highs are the addition of prior cumulative net new highs and current net new highs. These additions go on as the number of periods in a calculation increases.