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The cumulative A-D line is meaningless as a long term measure.
To say nothing of the fact that these indexes have in the past trended in the opposite direction of stock prices for several years at times, there are probably 5 times the number of listed stocks today as there were in the 1950s. I can remember when the daily data read something like 600 up, 300 down, and less than 100 unchanged. The typical net change was a couple hundred or less either way. Today it's often 10 times that. String a few up days together and you can get a year's worth of change in 1950s terms. So comparing the A-D line to where it was in the fifties is patently bogus.
And what good is an indicator that goes counter to stock prices for years at a time. That's supposed to be helpful?
In order for long term comparisons to mean anything they'd have to be normalized to percentages or ratios, or limited to a fixed number. And even that would still mean less than drawing a straight line connecting a series of price points on an index chart.
Furthermore, the AD line is another stat that ignores the fact that once a stock goes to zero, it can't decline any more. They just stop counting it.
It's really amazing how they do that. Stock goes to zero. Total loss. You're done, game over wiped out. You don't count anymore. But your portfolio now has to work a LOT harder and better to make up the loss because there's one less horse pulling the wagon. A dead horse is dead weight. But not with an index. They just replace it with a fresh young horse with legs.
What a joke.
All of these phony indexes will always have an upward bias, regardless of the truth. The day they keep those stocks that go to zero in the divisors is the day they'll mean something.
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QUOTE(Black Prince @ Jun 16 2007, 04:34 PM)
Hui is going to blast off, period. Now as to the Cumulative AD the point the man was making if you go back to 1926 is you can see the maturation of the business cycle in the AD. Post war you had the biggest amount of start ups ergo more new highs. As companies got more mature they did not always make a new high every year. Now you have a great deal of firms outside of the US listing on our exchanges that are new reflecting the rapid world expansion. They are making new highs every year. So we are in an area that would be similar to the rapid, this time globally, expansion of the economies.
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The reason the A-D line is rising is because there are more companies in the markets. Period. The differentials today are 10 times what they were in the fifties. That's why the line broke out.
The growing number of companies is an effect of the worldwide credit bubble. It is meaningless as a predictor.
Furthermore, more stocks mean more supply. It's simply ridiculous to think that that's a bullish factor for the long term. It's like saying more houses are bullish for real estate.
The theses are feces. Totally illogical.
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QUOTE(Black Prince @ Jun 15 2007, 07:48 PM)
This may be my last post because I will probably do it wrong but I think it is to important and HAS to be read.
Okay here is the web address from Cystal Ball on an essay from Tom Drake
http://www.village20...ages/84732.html
He is the one that developed the 2cs indicator.
It is a piece from Tenario, which I do not recognize though I think I have heard of it.
Category: General Interest
From: deuxsous (Tom Drake)
To: ALL
Date Posted: June 15, 2007 at 17:07:54
Subject: cumulative daily NYSE A/D
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someone pointed me to Pete Glass's recent A/D post at the other CB site together with the daily NYSE A/D chart from way back. (go look at Pete's chart.)
stand-alone daily a/d is very useful in breadth measurements as we all know, but in my opinion cumulative long term a/d is and has always been misunderstood by many analysts.
for example, why did NYSE A/D make a bottom between 1932 and 1942? why did it peak in the late 1950's? why did it make a bottom from 1974 to 2001? why has it been flying since then?
i think the answer to all these questions (and the chart) is that cumulative NYSE A/D measures long term new dynamic growth. in other words it measures the vastly increased number of newly formed companies of 5-10 years before the second bottoms which have grown fast enough to make it to the NYSE and are still growing.
we forget, if we ever knew, the tremendous growth of new companies in the 1930's and early 40's as rates were falling. but many of us have experienced that similar dynamic growth in new and vibrant corporations from 1974 to recent years.
and in turn the peak in A/D in the late 1950's was a final growth maturation of all those largely manufacturing corporations of the "old economy". however, the market in price continued to chug on up into the 1966/69/72 highs before collapsing as rising interest rates finally pulled the plug on the weakening old economy.
my impression and belief is that the cumulative NYSE A/D is now telling us that we are still in the early stages of a growth explosion in companies which haven't got old enough yet to become flabby or be killed by interest rates. When flabbiness ensues and rates get "too high" in another decade or so (= +/-), the A/D will make another long term top well before the market does.
given the current rush into "virtual" offshore labor and manufacturing companies, with marketing and finance still on-shore US, my guess is "flabbiness" this time will come when the "last" US company has off-shored everything and that is no longer the right thing to do at that point. (read some of L Gave's descriptions of this phenomenon for a different perspective.) meanwhile despite pullbacks or even an official bear 15% market decline occasionally, the US stock market will still have staying power based on the existence of so many relatively new dynamic growers.
©Tenorio Research 2007
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Black P
Heres another three cents worth of opinion--Think of our economy years ago;think of it as realtively healthy...I knw I know but think of it as healthy if nothing else,simply for the sake of argument..
Summarise it metaphorically as being equal to a well running old-fashioned Swiss watch....with gears meshing just right..
Now introduce China and think of it as a very minor loose and rattling gear: noisy but still useful---and think of its wobbling effect as what economists refer to as leads and lags..
Its these leads and lags (money payments,wage scales lagging etc) that if permitted to be compensated by continual insertions of heavier and heavier grades of oil that will eventually result in the wobbly gear jumping completely off of its pin and bringing the whole machine to an abrupt halt that is most worrisome.
When you refer to a time when companies become flabby, I read "flabby" as workers previously laid off by labor arbitrage, now incapable of buying the cheap wealth producing krap of china...
Both Chinese producers and American burger-flipping consumers start whirling around on a treadmill to oblivion...
Switching metafors in mid-stream the clock becomes a gerbil cage
Where each group is deluded into thinking they are winning a never ending race in a gerbil cage, both oblivious to its unending circularity, each one of whom is continually leading (the americans in a race to the employment bottom , the chinese lagging in their ability to produce at a profit)....
At some point the race begins to accelerate,bits of half eaten cheese and fecal material start centrigugally flying out of the cage splattering anything and anybody within a reasonable distance.
Until these leads and lags lead to the universal need for a mass Global lobotomy...
What essentially has happened is that all of human activity has now changed into a mode, where no matter how low on the food chain, with only your labor as capitol,all the way to the highest chautebriand eating member, everyone, is now obligated to speculate on what his life and earings will be a year from now,or six months, then a month a week,day hour until finally its a duration of tiny minutes..
At which point Uncertainty permeates the minutest crack of life, and the norm becomes either betting one's life on the purchase of a donut versus a glass of milk for a child .
beardrech ph34r.gif ph34r.gif If you think this is far fetched ask yourself why,from time to time, whole populations of heretofore reasonable people go beserk
ive been trying to figure technical analysis for about 4 years and have found how truly difficult it is. i read a couple of articles on divergences and thought id found the holy grail only to find out about much more: the most important being to let go of personal biases or learning the many forms that the enemy takes and embracing the seemingly obvious
im gradually learning, after this period of observation, who the best analysts are and by this who the best players are. you who share so freely are a great benefit but its hard to separate the chaff from the grain in such a mixed environment with all of the newsnoise and dissonant voices.
