A great indicator gone bad
Last week I lamented the demise of the NYSE advance decline line as one of the premier breadth indicators.
Those lamentations prompted some interesting responses.
The first from Greg Morris author of "Market Breadth Indicators" which I quoted:
Mike,
I have looked at this a lot as I get numerous emails along the lines of your piece today. (AD Line)
I think the decimalization of pricing has caused the bulk of this change, while it was probably evident 7 years ago when I wrote the book, it is clearly evident now. I can't remember exactly but we went from eights to sixteenths then to 1 cent from about 1997 to 2001-2. This has clearly affected all breadth measurements, but probably none more than the AD Line.
Keep up the good work.
Ratio adjusted breadth still does a great job of showing topping (distribution) action.
Greg Morris
Chairman, Investment Committee
Chief Technical Analyst
Edited by Rogerdodger, 10 March 2012 - 11:50 PM.
