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Here We Go on the Advance/Decline Line Again


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#1 TechMan

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Posted 27 February 2010 - 03:16 PM

This is in no way specifically targeting anyone on this board but an objective discussion of a technical indicator. Please see my old thread of the problem I've had with this indicator, whether in favor of an argument for a bullish or a bearish case.

http://www.traders-t...?...echman&st=0

In addition, here's what Paul Desmond of Lowry’s Reports had to say about this indicator back in 2004. I have the PDF file, and I can email to anyone has the space to post this on the website for download. I don't think I can upload docs on this board.

==========
How could the time-honoured Advance-Decline Line give off such obviously false signals? The answer is simple but not easily seen. Over the past decade, the New York Stock Exchange (NYSE) has allowed trading in a growing number of issues that are not, or do not trade like, domestic common stocks. For example, of the 3,500 issues listed on the exchange, approximately five hundred are closed-end bond funds. Another six hundred issues are preferred stocks that trade more like bonds than common stocks.

In addition, there are more than four hundred foreign stocks and American Depositary Receipts (ADRs) that may or may not reflect the trends of the domestic stock market. Lastly, roughly three hundred real estate limited partnerships are listed on the NYSE that, like mutual funds, are not operating companies. The bottom line is that almost half (48%) of the issues currently listed on the NYSE are not really common stocks - at least not what investors generally think of as stocks. These nonoperating companies have been the principal cause of the false signals given off by the Advance-Decline Line in recent years.
===========

#2 relax

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Posted 27 February 2010 - 03:52 PM

i thought the exact same thing as your title seems like everybody has forgotten what happened at the jan top nyad was confirming further upside and gave us no warning of a move down just like nyud cumulative in august/september 2000 - made new highs, but was not confirmed by nyad, and the market turned down hard after that so seems like one could use nyad/nyud as a combined confirmation indicator nyud actually diverged at the january top, but the march 2009 gave no divergence in cumulative breadth with regards to their leading ability - well i actually think a simple ema cross would not yield much worse returns nonetheless breadth is a good tool

#3 atlasshrugged

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Posted 27 February 2010 - 03:58 PM

tech,,,, i seem to remember an ad line the excluded all the reits, and etfs...do you know the symbol for it? maybee i saw it on decision point years back... and by the way..lowry is bullish right now :)

#4 fib_1618

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Posted 27 February 2010 - 04:13 PM

As it would probably bore the reader to again rehash this debate, if you wish to see a breakdown of the components outlined by Paul you can see review them each and every week over at Technical Watch.

Here's a link to this weeks charts which have proved that Paul's earlier comments were...um..."misguided".

Fib

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#5 TechMan

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Posted 27 February 2010 - 04:19 PM

tech,,,, i seem to remember an ad line the excluded all the reits, and etfs...do you know the symbol for it?

maybee i saw it on decision point years back...

and by the way..lowry is bullish right now :)


Hi atlas - As you know, I'm also bullish as per my SPX Timer.

I don't usually read Decision Point or other websites except when I'm doing researches, so I don't know what's going on out there. I remember Lowry's has its own AD Index. Perhaps you'd find something.

Have a great weekend!

#6 TechMan

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Posted 27 February 2010 - 04:20 PM

Hey Fib - Thanks for the link.

#7 IndexTrader

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Posted 27 February 2010 - 06:12 PM

This is in no way specifically targeting anyone on this board but an objective discussion of a technical indicator. Please see my old thread of the problem I've had with this indicator, whether in favor of an argument for a bullish or a bearish case.

http://www.traders-t...?...echman&st=0

In addition, here's what Paul Desmond of Lowry’s Reports had to say about this indicator back in 2004. I have the PDF file, and I can email to anyone has the space to post this on the website for download. I don't think I can upload docs on this board.

==========
How could the time-honoured Advance-Decline Line give off such obviously false signals? The answer is simple but not easily seen. Over the past decade, the New York Stock Exchange (NYSE) has allowed trading in a growing number of issues that are not, or do not trade like, domestic common stocks. For example, of the 3,500 issues listed on the exchange, approximately five hundred are closed-end bond funds. Another six hundred issues are preferred stocks that trade more like bonds than common stocks.

In addition, there are more than four hundred foreign stocks and American Depositary Receipts (ADRs) that may or may not reflect the trends of the domestic stock market. Lastly, roughly three hundred real estate limited partnerships are listed on the NYSE that, like mutual funds, are not operating companies. The bottom line is that almost half (48%) of the issues currently listed on the NYSE are not really common stocks - at least not what investors generally think of as stocks. These nonoperating companies have been the principal cause of the false signals given off by the Advance-Decline Line in recent years.
===========


We've had this debate many times over the years, long before your arrival. So I'm with Fib, I'm going to pass. Perhaps you could search the archives. Or alternatively, if you've convinced yourself that the A/D is meaningless, then simply don't use it.

Meanwhile, perhaps you could explain to me how the many closed-end bond funds and preferred stocks that are interest-rate sensitive and are included in the NYSE A/D line would have no forecasting ability for the indexes. Call me crazy, but I would think interest rates might have something to do with the direction of stock prices...but hey, what do I know?

IT

#8 IndexTrader

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Posted 27 February 2010 - 06:15 PM

i thought the exact same thing as your title

seems like everybody has forgotten what happened at the jan top

nyad was confirming further upside and gave us no warning of a move down


I suppose we could conclude that the A/D doesn't necessarily diverge on every top, but when it does it's a distinct warning. We'll see how it plays out, but wouldn't it be interesting if that top in January turned out not to be much of a top? Either way, they change the key to the lock at every top and bottom, otherwise it would be too easy.

IT

Edited by IndexTrader, 27 February 2010 - 06:17 PM.


#9 TechMan

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Posted 27 February 2010 - 06:28 PM

We've had this debate many times over the years, long before your arrival. So I'm with Fib, I'm going to pass. Perhaps you could search the archives. Or alternatively, if you've convinced yourself that the A/D is meaningless, then simply don't use it.


IndexTrader - Before I explain anything to you, why don't you explain to me why is it that something that had been discussed in the past couldn't be brought up for discussion again for old and new comers benefits???

Had trendlines, moving averages, etc. had been discussed all over the place way, way before you became a member here in 2003? Has any of these technical indicators been brought up over and over and over again for discussion? Why doesn't everyone just shut up and look for them in the archives? Why bother to post anything at all when in fact there's really nothing new under the sun?

I'm awaiting your response...

#10 TechMan

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Posted 27 February 2010 - 06:54 PM

We've had this debate many times over the years, long before your arrival. So I'm with Fib, I'm going to pass. Perhaps you could search the archives. Or alternatively, if you've convinced yourself that the A/D is meaningless, then simply don't use it.


IndexTrader - Before I explain anything to you, why don't you explain to me why is it that something that had been discussed in the past couldn't be brought up for discussion again for old and new comers benefits???

Had trendlines, moving averages, etc. had been discussed all over the place way, way before you became a member here in 2003? Has any of these technical indicators been brought up over and over and over again for discussion? Why doesn't everyone just shut up and look for them in the archives? Why bother to post anything at all when in fact there's really nothing new under the sun?

I'm awaiting your response...


Well, INDEXTRADER??? Why the suppressive gesture? Just because I'm a new member that doesn't mean I was born yesterday. If I'd been here longer, I'd welcome new members and encourage them to share their thoughts as much as possible even if I disagree with them. And, I'd treat them and talk to them the way I'd like to be treated and talked to. Right?