Sunday, June 19, 2011

NYSE A/D Line & Positive Divergence

A Google search on NYSE Advance Decline Line will serve up many offerings and so I selected and this is a clip

“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. Typically, the advance-decline statistics come from the NYSE or Nasdaq on a daily basis. Chartists can 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.”

Note the key word here DIVERGENCES. A divergence occurs when two lines on a chart move in opposite directions vertically. The lines can be two indices (the DOW and the Russell2000) or, an index and a technical study such as a stochastic or for our purpose the NYSE advance/decline line. A positive divergence occurs when the indicator moves higher while the stock is declining. A negative divergence occurs when the indicator moves lower while the stock is rising.  
Our Current NYSE A/D line is displaying positive divergence due to the higher low relative to the prior March low. In other words the current low of the S&P500 is not confirmed by the bullish higher low of the A/D line.

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