Chartered Market Technician (CMT) Practice Exam

The New High-New Low index is a market breadth indicator used to assess the strength or weakness of a market trend by comparing the number of stocks reaching new highs with those reaching new lows. The correct method of calculation involves subtracting the number of New Lows from the number of New Highs.

This approach allows analysts to gauge the overall market sentiment: if there are significantly more new highs than new lows, it suggests a bullish market sentiment, indicating that many stocks are performing well. Conversely, if new lows outnumber new highs, it may indicate bearish conditions, suggesting that more stocks are struggling compared to those that are thriving.

Thus, by focusing on the differential between New Highs and New Lows, the New High-New Low index provides valuable insights into market dynamics and can help traders and investors make informed decisions based on prevailing market conditions.