The New Highs/Lows Ratio function calculates the daily ratio between the number of stocks reaching new 52-week highs to the number achieving 52-week lows.
This indicator is similar to the Advance/Decline Ratio and makes a reasonable overbought/oversold indicator for the market. Extremely high values may indicate that the market is becoming overbought. A sell-off may follow, which in turn would cause prices to drop. Likewise, extremely low values can indicate that the market is becoming oversold.
Since it concentrates only on a portion of the activity in the broad market, it is typically more useful as a confirmation for other indicators than directly generating entry/exit signals.
Use broad market indicators for trading against broad market indices through options, futures, and mutual funds. They can also be used to increase the effectiveness of more specific signals by adding confirmation or warning of upcoming trends.