Along with using the ISE Sentiment Index as a market timing tool, I also like to look at the number of new highs and new lows for any given exchange. My preference is the New York Stock Exchange’s new high/low numbers, though the NASDAQ’s can be useful too. The only exchange in which I don’t see a great deal of value in the number of new highs and lows is the AMEX - just not enough breadth or depth there to get a good read. 

What’s my interpretation? This one’s actually a little less ambiguous in some ways, but more ambiguous in other senses, than the ISE Sentiment Index. Basically, I’m looking for a wild reading in the number of new lows to suggest a bottom has been hit. More than 500 new lows has been a good rule of thumb lately.

As for a short-term market top, I want to see about 250 new NYSE highs before assuming we’re poised for a pullback. (Bear in mind the new high test/standard is much less specific and difficult to time than the new low rule of thumb.)

Why these levels? Namely because they work. Check out the chart below…the new highs are in green, and the new lows are in red. Though not super-precise, the market timing strategy has caught most of the major turning points.

The reason I want to point it out now is the same reason I wanted to look at the ISE Sentiment Index today…we’re actually NOT seeing the extreme readings that would normally suggest a high has already been hit. That’s pretty stunning considering the size and speed of the recent rally. But, according to the number of new highs we’ve seen the last few days, there’s still room for more gains before the proverbial wall is hit.

As always, there are no guarantees, but plenty of annoying exceptions. The odds seem pretty clear to me though. Despite the fact that I’m still looking for a small pullback - on the order of 3% to 5% - my market timing tools still say more strength could be in store.

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