S&P 500 10-Day Advance Decline Line (12/15/08)

The ten-day advance decline line of the S&P 500 has finally cooled off a bit after becoming extremely overbought a few trading days ago. The 10-day A/D line measures the average number of daily advancers minus decliners in an index over the last 10 days. It is an excellent measure of breadth and speaks to the underlying health of the market.

Below we highlight one-year charts of the 10-day A/D line for the S&P 500 and its ten sectors. When the A/D line moves into or above the red zone, the index or sector is overbought from a breadth perspective, and vice versa for a move into or below the green zone.

As shown, the S&P 500 and all of its sectors moved into overbought territory last week, even though most of them didn't become overbought from a simple trading range perspective. When this happens, it means that the index or sector has gotten a bit overheated in the very near term, but it also means that their underlying health is strong, which paves the way for a move into overbought territory on a simple price basis over a longer period of time.

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Comments

[sr9web:]

Another excellent post.

2008 Dec 16 01:16 AM