Advance-Decline Lines Strong
by Carl Swenlin
April 23, 2010
(This is an excerpt from Friday's blog for Decision Point subscribers.)
While most people follow the NYSE Advance-Decline Line, which is composed of the approximately 3500 issues traded on the NYSE DecisionPoint.com has 19 versions of the Advance-Decline (A-D) Line in order to more accurately portray the internal picture of specific market and sector indexes.
For example, the NYSE Composite Index is composed of only the 1839 common stocks traded on the NYSE, so we have constructed breadth and volume A-D Lines (displayed on the chart below) using only those 1839 common stocks. The first thing of note is the negative divergence that accompanied the bull market top in 2007. The most important feature of the moment is that the trend of both the breadth and volume lines confirms the strong rise in prices from the March 2009 lows.
Some will wonder if it is significant that the A-D Volume Line has exceeded its 2009 high. In my opinion it is not. Of importance is that the A-D Lines confirm the current medium-term price trend. Divergences spanning several years, in my observation, should be ignored.
The next chart is of the S&P 500 A-D Lines, which of course are composed of only the stocks in the S&P 500 Index. Note that we have the same negative divergence in 2008, and the same confirmation of the current bull market trend.
The next A-D Line chart is for the Rydex equal-weighted version of the S&P Utilities SPDR. The indicators are constructed from the 31 stocks currently assigned to the utilities sector. While the price index is challenging pervious highs, note that both the breadth and volume A-D Lines are diverging negatively, indicating that the bull market in the utilities sector may be over. My opinion is that this sector should be avoided until breadth and volume begin trending upward again.
Unlike many indicators and oscillators, the Advance-Decline Lines have a theoretically infinite range and are not subject to becoming overbought or oversold. Overall, they are confirming the current bull market. Look at the A-D Lines of specific sectors (we track the nine SPDR sectors) in order to find specific areas of weakness and strength.
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Technical analysis is a windsock, not a crystal ball.
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2009 TIMER DIGEST RANKINGS FOR DECISION POINT #9 Intermediate-Term Stocks (52-Weeks) (TD Index 129.36 Vs. SPX 123.45)
#8 Intermediate-Term Stocks (5 Years) (TD Index 147.81 Vs. SPX 92.01)
#18 Bond Timer (*TD Index: 87.7 Vs. Bonds 83.86)
#5 Bond Timer (10-Years) (*TD Index: 127.25 Vs. Bonds 127.51)
#9 Gold Timer (TD Index: 115.30 Vs. Gold 124.00)
#3 Gold Timer (3 Years) (TD Index: 181.56 Vs. Gold 169.92)
#3 Gold Timer (10 Years) (TD Index: 322.74 Vs. Gold 375.51)
#6 Long-Term Timer (2 Years) Stocks (TD Index 136.41 Vs. SPX 75.94)
#7 Long-Term Timer (3 Years) Stocks (TD Index 141.22 Vs. SPX 78.62)
#2 Long-Term Timer (5 Years) Stocks (TD Index 165.27 Vs. SPX 92.01)
#5 Long-Term Timer (10 Years) Stocks (TD Index 162.51 Vs. SPX 75.90)
2008 TIMER DIGEST RANKINGS FOR DECISION POINT
#17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)
#4 Bond Timer (*TD Index: 112.32 Vs. Bonds 118.26)
#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)
#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)
2007 TIMER DIGEST RANKINGS FOR DECISION POINT
#40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)
#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
2006 TIMER DIGEST RANKINGS FOR DECISION POINT
#11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)
#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)
2000 TIMER DIGEST GOLD TIMER of the YEAR
*All timers and the benchmark index are assigned a starting TD Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year.
Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.
Nothing herein should be construed as an offer or solicitation to buy or sell any security. Past performance does not indicate future results.
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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
