Peter Eliades - Sign of the Bear
We frequently write in our newsletter about indicators we follow to give us some clue as to where the market may be going. The Advance/Decline ratio is another such indicator, and measures the strength of the stock market. It’s been behaving rather badly lately.
The A/D indicator is simply the number of stocks going up in price divided by the number of stocks going down in price on a particular day. When the number of stocks going up is larger than the number going down, breadth is said to be positive, and when declining stocks outnumber advancing stocks, breadth is negative.
An A/D ratio above 1 indicates that advancing stocks outnumber declining stocks, and a ratio of .5 means that decliners outnumber advancers by 2:1. Recently, breadth has been unusually negative. For the week of June 8, the ratio was .59, with 1121 stocks advancing and 1907 declining. In fact, the trend since the 2nd week in April has been negative, signaling general weakness in the market.