Primary Market Trend: Norman Fosback's High Low Logic - 01/25/24

Chart of the Day: (01/25/24)

Fosback's High/Low Logic Indicator

• In recent decades, most cyclical tops have been evidenced by Norman Fosback’s high-low-logic indicator. This condition is not evident today, but worth watching given 15-month old inverted yield curve, etc. etc.

• Description: The index represents the lesser of two numbers: New 52-week highs and new 52-week lows with both expressed as a percentage of total issues traded and then exponentially smoothes it by 50 days. 

• Interpretation: The concept is that either a large number of issues will reach new highs or will reach new lows, but normally not at the same time. Interestingly, Fosback found from his research, it doesn't matter what direction that uniformity takes. Many new highs and very few lows is obviously bullish, but so is a great many new lows accompanied by few or no new highs, suggesting a potential bottom phase.

• Greg Morris described it: "Because the indicator uses the lower of the new highs or new lows, a low reading on this indicator could indicator a strong trend. If you think about it, it is somewhat of a consensus indicator based on new highs and hew lows."

• Over the last few decades, readings above 6 have preceded almost all significant market corrections, if sometimes early with 2011the one exception. My thinking is this is because the data was stretched so far by the 2009 bear market lows that the data didn't have time to normalize before the Euro crisis shook the markets in 2011. Also, that 19.8% SPX decline resolved rather quickly to the upside. But a strong correction generally hasn't happened with low readings that we are seeing now.

• Our Chart of the Day is intended to be a standalone technical chart. 

• We use them to highlight open positions, stocks on our watch list, or indicators that we believe are important, or just interesting at the time. 

• It is not a directional market call. 

• Feel free to share them with others who may be interested.