S&P 500 A/D Line in Neutral Territory

Below we highlight a trading range chart of the S&P 500 along with its 10-day advance/decline line. The 10-day A/D line is a breadth indicator that measures the underlying strength of the market. It takes the average daily number of advancers minus decliners over the last ten days.

Currently, the A/D line is in neutral territory, resting just below zero. While the index price didn't quite get to overbought territory earlier this week, the A/D line did. One area of concern is that the A/D line has made a series of lower highs in recent months, meaning breadth has been weaker and weaker on subsequent rallies.

Comments

[tradersyste...:]

The only positive on that chart I see is the last higher low that would indicate positive divergence with the S&P (which has lower lows). But that only means we may get a bear market rally from here...

2008 Mar 28 12:58 PM

[Leonard:]

My apologies for coming in late in the game... What are the different colour definitions? Thank you.

2008 Mar 29 10:33 AM

[Matt from Q...:]

You had a bullish divergence that formed at the bottom of the A/D line between Jan 22 and Mar 10

2008 Mar 29 11:17 AM

[gordon:]

Before you hang your hat on that bullish divergence as in "bullish double bottom ", which is being parroted on almost every internet chart blog, the recent bounce was end of quarter WINDOWDRESSING, aided by Paulson making the auction window available to ALL trading desks. They used the 2.5% funds (rolled over in perpetuity) to buy cash SPY/DIA futures in the premarket, causing a gapopen shortsqueeze every day for at least a week, where they sold into the rallies. This, in the face of the worst 2 weeks of economic releases in years. Connect the dots.

2008 Mar 29 12:08 PM

[johnthebear:]

I have been studying the charts and find the authors analysis superficial to the big picture. What does it matter that the SP index for a few days is positive or neutral?

Face it, we are in a bear market the likes of which NONE of the current market participants have EVER SEEN BEFORE IN THEIR LIFETIME!

WE ARE TALKING DEPRESSION... a BEAR MARKET THAT LAST 10 YEARS OR MORE! It took WW II to bring us out of the depression, everyone knows that. I wonder if it will be a massive end of the time war with the Muslims to bring us out of the next depression. (Sorry about that, I am just hoping the liberals will wake up and realize that we are already in WW III and both their candidates will help our enemies win.)

Some will want to compare "Now" to the 2000 recession, and bust of the tech bubble. Simply not comparable situations. Nor other relatively short recessions since the depression. There is no basis for comparison or reason to believe that bear market rallies during the next 3-5 years will be the end. Simply no way to compare the failure of the world banking system when both China and India are on their knees as well as USA and Europe. Few seem to understand that China is in for a huge shock due to their excess productive capacity with sharply reduced sales on the global market. Their inflation is so much higher than ours and will get worse much faster. Who knows, high inflation may actually bring down the Chinese government in food riots, similar to what happen in 1989 when they called out all their troops against their people.

In 2000, we had the financial collapse of a number of foolish dream companies based on thin air and PE ratios high in the clouds.

Now, Look at the facts.... Since 2007 Citigroup "C" has lost $150 BILLION DOLLARS of market capitalization...NEVER TO BE RECOVERED! THAT IS TOO MUCH TO IGNORE, EVEN FOR THE MOST OUTRAGEOUS BULL YOU CAN THINK OF. Now, Bank of America BAC is the largest bank by assets! Those dummies bought Countrywide Financial! Paid their former CEO an outrageous salary to continue doing home loans, but with his hands tied behind his back. They won't let him continue doing 100% interest only loans! Too bad. When the new standards on lending come into play that requires a 10% or 20% down payment like in the good ole days, guess how is business will prosper? The bigger they are the dumber they are. So would you have advised BAC owning Countrywide?

Think about it friend... we are headed for a down cycle that is totally incompressible by anyone's standards of comparison! We are in big time trouble. I heard former treasury sec. Snow on CNBC say that Americans have been consuming 130% of their income for the last decade! They (and me) borrowed on our credit cards, took out home equity loans (not me) and generally spent more than we could afford. It was fun then, but will be painful in the future, I am so sorry to inform you.

In the coming months, by mid summer, banks will be collapsing. Hedge funds liquidating and junk bond rates hitting the ceiling as investors say heck no! You can't make that debt cheap enough or the rate high enough to make me fall for your silly game!

If you want to do a simple analysis with me, try getting out your favorite chart service of the Dow for 10 years, then compare the NASDAQ, then (IYR), the Dow Jones REIT index then (FXI) the China exchange traded fund and then (EEM), the emerging market ETF. Note that the REIT index FXI and EEM are all at higher levels than the NASDAQ was in year 2000! Everyone thought they would be safe in the emerging markets and that substituted for the high tech stocks of the last bubble. Now, all the big bubbles are in process of collapsing!

From this chart, you will see that over the last 10 years, EEM is the highest, up about 400%

FXI is up about 320%

IYR (the REIT ETF) is up about 160%

and the NASDAQ AT THE TOP OF IT'S BUBBLE WAS ONLY 150% when it was trading at 5000.

All of the these funds are headed down, big time. EEM went up the highest and will fall hardest. Get out of the way or get short! I am currently ultra short with SRS and FXP. But just because I am negative on the market, does not mean that I am wrong based on "sentiment" indexes.

2008 Mar 29 05:19 PM

[vaduz:]

dont take bets, believe the bear

2008 Mar 31 08:28 AM