The Nasdaq Composite consists of more than 2000 stocks. Every day it is counted how many stocks make a new high or a new low on a 52-week basis. We then take the difference between the new 52-week highs versus the new 52-week lows, which you see at the bottom of the chart above.

The most important thing this indicator measures is market breadth. If there are a lot of stocks making new 52-week highs then we can expect that no major corrections will occur during those phases. And of course the other way around if a lot of stocks are making new 52-week lows.

Experience shows that at the end of bull market trends, the market breadth decreases before the indices start to correct. This indicator often times represents an early warning sign that a correction might be ahead.