V.7:5 (147-149): An advance/decline line for commodities by Thom Hartle

V.7:5 (147-149): An advance/decline line for commodities by Thom Hartle
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An advance/decline line for commodities by Thom Hartle

One of the first technical lessons in stock market investing is understanding the relationship between the movements of the Dow Jones Industrial Average (DJIA) and the advance/decline (A/D) line for the New York Stock Exchange. The A/D line is the cumulative difference between the number of issues trading up on the day and the number of issues trading down on the day. If 235 issues are up and 356 issues are down then the A/D value for the day will be -121.

You may begin a cumulative total with any number. If you start with 1,000 and add today' s total of -121, the cumulative A/D value is 879. If the next day is up 329 issues and down 124 issues, that difference of +205 is added to the previous day' s cumulative value (879) for a new total of 1,084.

Each day's cumulative value is plotted on a chart along with the daily closes for the DJIA. Technicians watch for confirmation (both the DJIA and the A/D line are trending higher or lower together) or non-confirmation (the DJIA is trending higher while the A/D line is moving lower or the DJIA is moving lower while the A/D line is improving). Watching for this confirmation or non-confirmation is a study of the breadth of stock market movements. Knowing the breadth of rallies or declines can help determine the chances of a broad-based move up or a very weak downtrend developing.

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