Predicting the Stock Market: Taking Advance/Decline Line A Step Further

Over the last few months I’ve noticed a larger number of market participants interested in our old friend: the Advance/Decline line. I found that it was being used quite often as one reason to stay long and bullish since it was hitting new highs along with the major US stock market averages. If you don’t know, the A/D line is a measure of stock market breadth based on cumulative net advances. In other words, it takes the number of advancing stocks on the NYSE on a given day and subtracts the number of declining stocks. That number is then added to the previous day’s value, which creates the “line”.
While some have used this particular measure of breadth as “confirmation” of the uptrend in stocks, I’ve been pointing to another measure which has been diverging dramatically in the second half of the year. This is of course the Percentage of stocks trading above their 200 day moving average (or “in uptrends”) making lower highs with each new high in the market. But that’s not what today is about. You can go here if you want to read more about that one. Today is about that other measure of market breadth, the Advance/Decline line, specifically the NYSE Advance/Decline line.
Here’s a chart of what it looks like:
We can start by pointing to the fact that the new all-time highs we’ve been seeing since last month have not been confirmed by breadth. You can see that better in this chart: (more)
Please share this article