What Happens After a Stock Hits a 52-Week High? | The Long & The Short Ep. 55

Start your investing journey for free! Open a zero-brokerage Demat and trading account with Zerodha to invest in Stocks, Mutual Funds, ETFs, and Bonds: https://zerodha.com/open-account/?c=Z... What happens after a stock makes a new 52-week high? Is it a sign that the stock has already run too far, or could it actually tell us something about where the stock goes next? The 52-week high is one of the most visible numbers in any stock screener. But despite being so widely available, many investors instinctively avoid stocks making new highs. We start with William O'Neil's observation that 98% of investors he surveyed said they did not buy stocks making new highs, even though buying stocks showing strength was central to his own approach. We then look at what exactly a 52-week high means, the different ways of measuring it, and why weekly closing highs and distance from the high can be useful ways of looking at the data. The episode also goes back to the history of the idea, from Nicolas Darvas and his famous "boxes" to William O'Neil, CAN SLIM, and Investor's Business Daily. We then look at the academic research behind the 52-week high effect, including the 2004 study by George and Hwang and more recent research on Indian stocks, before exploring the behavioural explanation for why the effect might exist. Finally, we run our own backtest on the NIFTY 750, looking at stocks that make a new 52-week closing high, applying a 52-week cooldown between signals, and tracking what happens over different holding periods. The aim isn't to suggest that you should simply buy every stock that makes a new high. Instead, we look at whether the 52-week high can be useful as a first filter for stock selection. Welcome to The Long and The Short, a show where you can expect an honest take on trading and investing, something you won't hear elsewhere. I'm your host, Sandeep Rao (SEBI Registered Research Analyst - INH000013059). ⏱️ Chapters 0:00 – Introduction: why 52-week highs matter 1:52 – What exactly is a 52-week high? 3:48 – Nicolas Darvas and buying new highs 5:22 – William O'Neil and the new-high idea 6:59 – What the research tells us 8:50 – Why might the 52-week high effect exist? 10:46 – Our backtest: how we tested the idea 12:49 – What happened after the signals? 17:05 – How consistently did the signals work? 18:11 – How to use the 52-week high 19:33 – Conclusion Resources: Rajan Raju's research on the 52-week high effect in Indian stocks: https://papers.ssrn.com/sol3/papers.c... If you prefer reading, we've written a post about this episode here: https://inthemoneybyzerodha.substack.... Do check out our newsletter "Aftermarket Report" where we do a quick daily wrap-up of what happened in the markets, both in India and globally. here: https://aftermarketreport.substack.com/ Check out Varsity Live, a hands-on way to learn finance with experts. Instead of only listening, you practice in real time through activities like personal finance planning, technical charting, balance sheet analysis, and more: https://varsitylive.zerodha.com/home Disclaimer: The examples and ideas shared in this episode are strictly for educational and illustrative purposes only. Nothing discussed here should be construed as a recommendation, investment advice, or a solicitation to trade. Trading in stocks and derivatives involves significant risk and can result in the complete loss of capital. The examples and data presented are meant to explain market behaviour, not to suggest that similar outcomes will occur in the future. Investments in securities are subject to market risks. Please read all related documents carefully before investing. SEBI registration does not guarantee the performance of the intermediary or assure returns to investors. The securities mentioned are for illustrative purposes only and do not constitute a recommendation. By proceeding, you acknowledge and agree that any returns shown on this platform are solely for informational purposes. They are not intended to serve as advertisements or promotional material, nor should they influence your investment decisions. Trading and investment decisions should be made at your own discretion, and it is strongly advised to consult a qualified financial advisor before acting on any information provided. About Zerodha At Zerodha, we simplify complex financial topics to empower you with the knowledge to make smarter investment choices. Whether you're just getting started or looking to sharpen your skills, we're here to help you navigate the financial world with clarity.