$ADD as one of many guides for breadthMarket breadth is one of the tools I use to gauge market sentiment. Although it has been a bit more challenging in recent conditions, it is part of the technical analysis trade when gauging broad based strength and broad based weakness.$ADD measures advancing over declining activity: Advancing (buyers), Declining (sellers). Here is range for you fam on zones. Seller favored are BELOW -500 for me, while optimal zones for buyers are ABOVE +1000. Where is the market this morning? Is trend being your friend? (Ask yourself this every time you want to plan a trade!) //I use this alongside other key tools such as McClellan Oscillator. // $ADD was at <1705> at the time of this post
ADD trade ideas
S&P 500 vs. Advance-Decline analysis - Correction coming?Did a basic analysis that looked at the pattern for the highs of the adv-decl (AD) at the week time frame. I then compared that to the S&P 500. You can see that starting around the end of June the AD has been showing lower highs. You can see the same pattern leading up to the other corrections in the S&P. The time between corrections is also in the correct time frame. Also note that the MACD is close to switching from positive to negative. The pattern seems to indicate that some form of correction is to be expected in the next week or two. However, the amount of correction is not something that can be determined from this analysis.
A look at the NYSE Advance-Decline LineFor something a little different, here is a look at the NYSE Advance-Decline Line (AD Line). I am using this to look for the next market reversal. Based on this analysis, it looks like today maybe the last up day for the market with a reversal coming end of today (3:30pm), Monday, or worst case Tuesday. This analysis is supported analysis of both the SPX and VIX trend lines.
Background in case you are new to the AD Line.
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, rising when it is positive and falling when it is negative. Chartists can use Net Advances to 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.
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Market internals - Advance/Decline lineThe Advance/Decline Line or ‘A/D Line’ for short, is the second most important of the internals. This indicator tells us the net sum of advancing stocks minus declining stocks.
The A/D Line is expressed: # of Advancing Stocks – # of Declining Stocks
There are roughly 3000 stocks listed on the NYSE and 3000 on the NASDAQ. An A/D Line reading of 1,500+ is very bullish and a reading of over 2,000 is extremely bullish. On the flip-side readings of -1500 and below are very bearish and readings below -2,000 are extremely bearish.
These extreme readings are indicative of trending days where once the market continues to trend all the way into the close. We look to the A/D Line in conjunction with the Breadth Ratio to confirm these trend days.
For example:
A day with 2,500 advancing stocks and only 500 declining stocks would yield a net of +2,000 (an extremely bullish reading). It would take a large catalyst to shift the market direction with a reading this bullish.
If on the open you continue to see the A/D Line moving +500, +700, +900, this is a sign of market strength. If however, the market is moving higher, but the A/D Line is moving lower, a divergence has occurred and could be a sign of a market turn.
It’s important to look to the other market internals for confirmation as one indicator alone is not sufficient to confirm a move.
