Classic Technique  |  JAN 1996

The Advance-Decline Line Redux by Robert Kinsman

V.14:1 (29-33): The Advance-Decline Line Redux by Robert Kinsman The advance-decline line is an ongoing sum of the difference between the number of stocks closing higher minus the number of stocks closing lower each day. Here's a primer on how to use a variation on this indicator. Often in technical analysis, a commonly used market indicator can be expanded or modified to improve its value. One case in point is the ubiquitous advance-decline line. Many technicians have found that it can be smoothed to provide oscillators that reveal both overbought and oversold levels, plus important short- and intermediate-term market turning points. The best known examples of this are the McClellan oscillator and summation index. The theory behind the utility of an advance-decline based market indicator is obvious. It directly represents the market, no matter what the leading indices are doing. It's nice to know that the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 is moving up, but if market breadth is declining, especially if the decline is sharp, chances are good that a cross-section of stocks, usually those held by most investors, are going down. Clearly, that's an important fact. DISCOVERY In the early 1980s, I discovered that a simple smoothing of the reported New York Stock Exchange (NYSE) advance-decline (A-D) daily numbers produces a single-formula, highly useful, direct-read oscillator. The A-D is that of the NYSE as reported in The Wall Street Journal , other financial papers and databases. This takes the A-D figures from the NYSE composite tape (all exchanges), not just the NYSE's initial report of its own advances and declines.

by Robert Kinsman