The NYSEHILO reading recently hit above 97%, a level that has only been seen 14 times going back to 1980. How did the market perform in the past with this kind of occurrence?

After a strong November, broad domestic equity markets continued to push higher in the first trading day of December, with SPX and NDX hitting intraday all-time highs.  As a result of this strong market movement, we saw a number of our indicators reaching an elevated level, which begs the question if there’s any more room for the market to uptick.  One indicator, in particular, that we want to discuss today is the NYSE High Low Index ^NYSEHILO, which measures the percentage of stocks making new highs relative to those making new highs and new lows in the NYSE.  A moving average is then applied to the reading to smooth out the data.

^NYSEHILO had a reading of over 97% on 11/27, a level that we don’t often see with this chart.  Given its rarity, we studied all of the previous occurrences where this indicator reached 97% or higher, and found that this event is only the 14th time since the beginning of 1980.  Looking at the forward returns from one week to two years out with the past 13 instances, not only are they impressive, but they are also fairly consistent as shown in the table below.  The percent of times that the returns are positive is high in all time frames from one month to two years.  This suggests that when an indicator, such as this one, hits a high reading it doesn’t necessarily mean that the market can’t move any higher, as the indicator can remain at elevated levels for prolonged periods of time.