Monday, May 21, 2012

The NYSE Advance / Decline Line

On the prior post I began to seek out useless exchange traded funds which in order to qualify had to be either a thinly traded managed retail product or so complex you can’t figure out what it is.

However the recent slide in the global equity markets has got the market timers all excited and so I must serve up some analysis. I can just imagine a portfolio manager on a conference call with several large clients explaining away the 60 per cent cash component in the portfolios. “I always sell-in-May and go away, and besides last month the moon was on an annualized basis very close to earth.”

At important junctures I prefer to look at the NYSE advance – decline line which is an under used measurement of market breadth. According to Investopedia the advance/decline line is a very simple measure of how many stocks are taking part in a rally or sell-off. This is the very meaning of market breadth, which answers the question, "how broad is the rally?" The formula for the advance/decline line looks like this: A/D Line = (# of Advancing Stocks - # of Declining Stocks) + Yesterday's A/D Line Value

Our chart this week is that of the daily NYSE A/D Line clearly displaying the recent breakdown of the S&P500 and the NYSE A / D Line which is a significant negative technical event. However equally significant is the major support levels which are just below the current prices at Friday May 19, 2012. Clearly it is too late to sell so let us change the mantra from sell-in-May to stay-in-May

1 comment:

Shawn Severin said...

Hi Bill,

The TSX is posting multiyear lows and is now trading at levels it traded at in 2006. Where do you think the XIU will bottom out?