Technical Analysis from A to Z

ADVANCING-DECLINING ISSUES

Overview

The Advancing-Declining Issues is a market momentum indicator which shows the difference between stocks listed on the New York Stock Exchange that advanced in price minus those that declined. As of this writing, about 2,500 issues trade each day on the NYSE.

The difference between the number of advancing and declining issues is the foundation of many market breadth indicators. These indicators include the Advance/Decline Line, Advance/Decline Ratio, Absolute Breadth Index, Breadth Thrust, McClellan Oscillator and Summation Index. Indicators that use advancing and declining issues in their calculations are called market breadth indicators.

Interpretation

The Advancing-Declining Issues indicator shows the difference between the number of advancing issues and the number of declining issues. Plotted by itself, this indicator is helpful to determine daily market strength. Strong up days generally show readings of more than +1,000. Very weak days have readings of less than -1,000.

I prefer to plot a 5-to-40 day exponential moving average of the Advancing-Declining Issues rather than the daily values themselves. The moving average creates an excellent short-term overbought/oversold indicator. Both the Over-bought/-Oversold indicator and the McClellan Oscillator are created using moving averages of advancing minus declining issues.

Example

The following chart shows the DJIA and a 40-day moving average of the Advancing-Declining Issues indicator.

I drew "buy" arrows when the moving average rose above -50 and "sell" arrows when it fell below 125. Normally, I would use 100, but the strong up-trend during this period caused the indicator to have an upward bias.

Calculation

The Advancing-Declining Issues is calculated simply by subtracting the number of declining issues from the number of advancing issues.

The following table shows the calculation of the Advancing-Declining Issues.