Constructing paired new-high and new-low breadth indicators

Build the pair before reading it

New-high and new-low cycle tools are constructed as exponential moving averages of daily New York Stock Exchange new highs and new lows. The archive treats the finished pair as a map of cycle position, not as a session-to-session timing device.

Editorial reading: exponential smoothing, an inverted new-low scale, and a shared 100 to 200 trading-day window turn those daily counts into displayed states. Confirmation and non-confirmation can then be checked on the chart instead of being treated as implied price calls.

Seed, smooth, and invert

The exponential average is seeded with the arithmetic mean of the first five observations and then updated with a smoothing constant below one. Both averages use a 0.1 smoothing constant.

The new-high average is described as useful for checking upside moves and not useful on downside moves. The new-low average is presented as the stronger tool for defining cycles. That new-low average is plotted on an inverted vertical scale so low readings sit at the top.

Relative chart position is treated as the signal. The raw values are not.

Share a period, not a raw scale

On a combined plot each series uses its own period low as its floor and they share the higher of their highs. A useful shared window is 100 to 200 trading days.

Period means the number of trading sessions shown on the chart. Lengthening or shortening that window can make a period-sensitive construction misleading.

Turn extremes into testable states

Confirmation is a displayed-window state in which both a price average and the paired breadth average reach a new high or a new low. Non-confirmation is a displayed-window state in which a price average reaches a new extreme and the paired breadth average does not.

Two constructed watch states sit on that pair. One is a price average crossing a new-low reading above 10. The other treats a new-high confirmation of a price high as valid only when the new-low reading is not above 10.

The first of those watch states is a penetration: the price average crosses the plotted new-low average after that average has moved a stated distance from the bottom of its scale.

Keep the cycle window and the exchange list

The pair is framed for locating position inside long cycles of two to five years and short cycles of 40 to 400 trading days. It is framed only when built from New York Stock Exchange counts rather than other U.S. exchange lists.

In long cycles of two to five years, the new-high average is described as peaking after 50 percent to 60 percent of the eventual advance and later failing to confirm short-term tops as the long cycle matures.

Archive chart states

Chart examples show a new-high series confirming successive industrial-average highs, then a later confirmation with the new-low series near 4 percent of its scale.

They also show an unconfirmed 1987 industrial-average high, and a 1981 confirmation later followed by a price cross of a new-low reading of 15.