Mark Hulbert at Marketwatch has a good write up today of Norm Fosback’s High Low Logic Index, which is currently very bullish. It’s nice to see something positive about the market for a change.
The indicator I’m referring to is the High Low Logic Index, which was devised in the 1970s by Norman Fosback, then the President of the Institute for Econometric Research, and currently editor of Fosbacks Fund Forecaster. 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.
In fact, there have been only four other occasions over the last 25 years in which the Ned Davis Research version of the High Low Logic Index has moved from bearish territory above 4.05% to as low as it is today, and all four came close to a major market bottom: Late 1987, late 1990, early 2003, and late 2008.
I understand the point of the indicator. Very few new highs suggest you might be near a bottom. Very few new lows suggest the market is already trending strongly. The last few days, however, have been marked by very few new highs or new lows. That might be evidence only of indecision in the middle of a range.
The NYSE high-low index that we track is trending weakly upward right now as well, lending at least some credibility to the thesis. We’ll have to see how it pans out, but for the record, I hope that Fosback’s indicator is correct!
