52-Week High/Low

A 52-week high/low is the highest and lowest price at which a stock has traded during the previous year. It is a technical indicator used by some traders and investors who view the 52-week high or low as an important factor in determining a stock's current value and predicting future price movement.

As a stock trades within its 52-week price range (the range that exists between the 52-week low and the 52-week high), these investors may show increased interest as price nears either the high or the low.

One use for the 52-week high/low figure is to help determine an entry or exit point for a given stock. For example, stock traders may buy a stock when the price exceeds its 52-week high, or sell when the price falls below its 52-week low. The rationale behind this strategy is that if price breaks out from the 52-week range (either above or below), there is enough momentum to continue the price move in the same direction.

According to research conducted in 2008, volume of trading in a stock spiked once it crossed a 52-week barrier. Small stocks crossing their 52-week highs produced 0.6275% excess gains in the following week. Correspondingly, large stocks produced gains of 0.1795% in the following week. Over time, however, the effect of 52-week highs (and lows) became more pronounced for large stocks. On an overall basis, however, these trading ranges had more of an effect on small stocks as opposed to large stocks.

The 52-week high/low is based on the daily closing price for stocks or indexes. Often, a stock may actually breach a 52-week high intra-day, but end up closing below the previous 52-week high, thereby going unrecognized. The same applies when a stock makes a new 52-week low during a trading session but fails to close at a new 52-week low, going unrecognized. The cliché, "if a tree falls in the woods and no one hears it, did it really fall?" applies. However, in these cases, the failure to make a new closing 52-week high/low can be very significant.

A stock that makes a 52-week high intra-day but closes negative on the day may have topped out, meaning its price may not go much higher in the near term. Often, professionals and institutions use 52-week highs as profit stop levels to lock in gains. Although 52-week highs represent bullish sentiment, there are also plenty of investors prepared to give up some further price appreciation in order to lock in some or all of their gains. Stocks making new 52-week highs are often the most susceptible to profit taking, resulting in pullbacks and trend reversals.

When a stock makes a new 52-week low intra-day but fails to make a new closing 52-week low, it may be a sign of a bottom. This can be determined if it forms a daily hammer candlestick, which occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or near its opening price. This can trigger short-sellers to start buying to cover their positions while bargain hunters come off the fence. Stocks that make five consecutive daily 52-week lows are most susceptible to seeing strong bounces when a daily hammer forms.

Suppose that stock ABC trades at a peak of $100 and a low of $75 in a year. Then its 52-week high/low price is $100/$75. Typically, $100 is considered a resistance level while $75 is considered a support level. This means that traders will begin selling the stock once it reaches that level and they will begin purchasing it once it reaches $75.