Mark Hulbert Notes Sell Signal From Key Indicator

By on July 19, 2013

Mark Hulbert - Hulbert Financial DigestIn a MarketWatch column this week Mark Hulbert writes about Norman Fosback’s “High Low Logic Index,” created by Fosback in 1979.

The High Low Logic Index represents the lesser of two numbers: new 52-week highs and new 52-week lows (both expressed as a percentage of total issues traded). High readings are bearish, while low levels are bullish.

According to Hulbert:

Fosback recommended using a 10-week exponential moving average of the weekly values. When that average reached 5%, he said it indicated “extreme market divergence” and therefore bearish. And that’s just what the indicator did in June, rising to 5.1%. It currently stands at 4.6%.

Hulbert also comments on Ned Davis Research analysis of the indicator which indicates a lower threshold of 4.4% for a weaker market.

Although the weakness of the market following such a reading is certainly not catastrophic according to Ned Davis:

On average over the next three months, the firm calculates, the S&P 500 has fallen an average of 1.6%. Over the six months following such occasions, the average decline has been 2.7%.

SMA Comment: The number of new lows in the NYSE was skewed in June by the unusual weakness in the bond market which caused a spike in new lows for closed-end and ETF bond funds. I’m not sure if the indicator accounts for this anomaly. The bond market weakness also triggered a few occurrences of the “Hindenburg Omen” in June.

Source: Marketwatch

One Comment

  1. Clifton Portis

    July 23, 2013 at 6:40 pm

    You’re right, this information is basically useless because the majority of new lows were bond fund related. Hulbert, let us know when the market is going to crash. That might be useful.

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