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Study Guide for The New Trading for a Living by Dr. Alexander Elder

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SIX

General Market Indicators

  1. Answer 6-1: C (1, 2, 3, and 4)

    New Highs are the stocks that have risen to the highest level in a year, while New Lows are the stocks that have fallen to the lowest level in a year on any given day. New Highs are the leaders in strength and New Lows are the leaders in weakness. The New High–New Low Index (NH-NL) works by measuring the difference between the strongest and the weakest stocks on any given day. It is a leading indicator of the stock market.

  2. Answer 6-2: 1 = D; 2 = C; 3 = A; 4 = B

    When the market rallies and NH-NL rises to a new high, it shows a growing bullish leadership. It pays to follow the leaders and go long. When the market declines and NH-NL drops to a new low, it shows that bearish leadership is becoming stronger. This bearish divergence indicates that it pays to go short. If the broad market rallies but NH-NL traces a lower peak, it shows that the uptrend is losing its leaders and may be in trouble. If the market falls to a new low but NH-NL traces a higher bottom, it shows that the downtrend is losing its leaders and nearing a bottom.

  3. Answer 6-3: 1 = A and D; 2 = B and F; 3 = G–H; 4 = D–E

    NH-NL tracks the numbers of the market leaders, making it a leading indicator of the stock market. Its bullish zone is above the zero line or, if you want to make it less prone to whipsaws, above the plus 100 level. Its bearish zone is below the zero line or, if you want to make it less prone to whipsaws, below the minus 100 level. ...

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