When we discuss market breadth we often are looking at daily data. In the Technical Market Outlook post I wrote on my blog I show the NYSE Advance-Decline line each week as a reminder of where we stand with regards to breadth. However, we can also use this powerful tool when looking at intraday data.
When looking at the NYSE Advance-Decline Line it’s important to remember that it includes more than just common stocks. Among over 1,900 securities that make up the NYSE, included are ADRs, REITS, bond funds, as well as stocks of public companies.
Below is a 30-minute chart of the S&P 500. I’m using this timeframe as an example, different traders use different time periods and it’s important for each trader to find what works best for them and their risk tolerance. On the bottom panel we have the NYSE Advance-Decline Line and on the top panel we have a momentum indicator called the Relative Strength Index (RSI). When looking at a very short-term chart like this I begin to look for divergences, both positive and negative, in these measures of breadth and momentum.
I’ve added blue lines to highlight a few examples.
Most recently we saw price begin to find some support near the 1816 area. Each of the three tests were accompanied by higher lows in the RSI indicator as well as higher lows in the Advance-Decline Line. This told us that momentum was rising and more stocks were advance vs. declining as the price action began to form a short-term bottom. Over the next couple of days we saw the S&P 500 rise over 50 points.
So while the daily movement of the Advance-Decline line is a great measure of the health of the market, we can also use it on shorter-term charts to find potential turning points in the equity index.
Disclaimer: The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.