One set of statistics reported daily is the number of 52-week new highs and new lows (NHNL) for the New York Stock Exchange (NYSE). These numbers are also reported for other exchanges as well, but most references are made to the NYSE. The total numbers reported for the exchange is a derivative of the 52-week high and low shown for each stock in the newspaper stock listings, and a list of the stocks making new highs or new lows is also usually included in the newspaper. How is this information of value to you?

To begin, the fact that an individual stock is hitting a new 52-week high or low is of almost no value at all. Okay, a new high or low may indicate strength or weakness in a particular stock, but by the time a stock begins to push out of the 52-week envelope, it has probably moved too far for you to benefit from the information. Also, the stock could be hitting a new 52-week high, yet be in a long term down trend or vice versa.

The most useful aspect of NHNL information is how it relates to the broad market. As the market moves to new highs, there should be a corresponding increase in the number of stocks making new highs, or, as the market moves to new lows it should be confirmed by an increasing number of stocks hitting new lows. When new highs begin to contract at tops and new lows begin to contract at bottoms, we say that there is a divergence that is giving us a sign that the market may be getting ready to turn.

My experience with this indicator is that divergencies can persist for some time (weeks to months) before the market reacts as expected, and many times the expected reaction never comes. One reason is that there can be group rotation within the context of a broader move. For example, the strongest group can begin to consolidate, failing to make continued new highs; whereas the weakest groups can be surging and taking the market higher, but the stocks in that group are not anywhere close to being near new highs. Therefore, it is best to use this indicator as a supplement to other more reliable ones. Keep an eye on it, but don't give it too much weight.