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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Benkea who wrote (34918)	12/8/1999 11:12:00 PM
From: John Madarasz	Read Replies (1) \| Respond to of 99985

Capital Growth Topics #303: The High Low Logic Index The High Low Logic Index is a stock market breadth indicator developed by Norman Fosback, the editor of the newsletter Stock Market Logic, in 1979. Though some have trouble wrapping their minds around it, it is really quite a simple and elegant idea. The daily High Low Logic Index is a ten-day exponential average of the lesser of new highs / total issues traded or new lows / total issues traded. To quote Mr. Fosback from the book "Stock Market Logic" "The rationale behind the Logic Index is simple. Under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows - but not both. As the Logic Index is the lesser of the two percentages, high readings are therefore difficult to achieve." It you reflect upon it you will see that in order to have high readings of both new highs and new lows the market must be out-of-gear. In a strongly uptrending market new lows will run at very low levels while the new highs list expands as the rally progresses. Exactly the opposite is true in prolonged declines. In a flat market you'll see few new highs or lows. When you get large numbers of new highs and lows simultaneously it is indicative of a time of transition, confusion and change, of opposing trends asserting themselves. Mr. Fosback focused on high readings of the Logic Index being a sell signal, but the record reveals the Logic Index can issue buy signals as well. In fact, the record suggests that high readings of the Logic Index are indicative of the end of the current trend, without regard to whether it is an advance or a decline. For example, high Logic Index readings marked both 1998's high and the subsequent correction low. The two percent area for the daily version is the level to watch. Spikes up into this area almost always mark changes in trend or at least pauses in the trend. Last week we got a one-day reading of 2.5% and a 10-day average of 2.0%. Click here to display the High Low Logic chart. bollingerbands.com John Bollinger, CFA, CMT 3 December 1999 Regards, jm