Economic Indicators

The Dow Jones Industrial Average jumped to a record high earlier this week. Beneath the surface, however, not everyone is keeping up.

StockMarketNews.Today - The cumulative advance/decline line calculates how many stocks have moved higher versus those that moved lower during a certain period of time. It's a technical indicator measuring market breadth-in other words, how many stocks are participating in the market's general moving direction.

StockMarketNews.Today

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The line for NYSE stocks has shown some initial signs of rolling over lately, notes Jason Goepfert from Sentiment Trader. “While most stocks have been rising, pushing the advance/decline line near its highs, the losing stocks have been losing badly,” observed Goepfert, who notes that more than half of the NYSE stocks are now trading below their 200-day moving averages. Considering the Dow and S&P 500’s recent gains, this kind of split is “highly unusual” and “highly risky,” according to Goepfert, and can be considered a technical sign of bear market.

Since the 1990s, there have only been six occasions when the Dow was at a 52-week high but less than half of NYSE stocks are above 200-day average. And it’s usually followed by bad news: Five times occurred in the years leading up to the 2000 dot-com bubble, and once before the Great Financial Crisis in 2008. Technical signals aren’t always right-and they can take times to play out-but this one probably shouldn’t be ignored.

500

Info: The Advance-Decline Line (AD Line) is a breadth indicator based on Net Advances, which is the number of advancing stocks less the number of declining stocks. Net Advances is positive when advances exceed declines and negative when declines exceed advances. The AD Line is a cumulative measure of Net Advances. It rises when Net Advances is positive and falls when Net Advances is negative.

Chartists can use Net Advances to plot the AD Line for the index and compare it to the performance of the actual index. The AD Line should confirm an advance or a decline with similar movements. Bullish or bearish divergences in the AD Line signal a change in participation that could foreshadow a reversal.

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