The Advance/Decline Line

Not "Every day I hear about the" progress / decline "line and more often than the negative, even if the market up How is that" High demand and it's a bizarre situation Let's see.?.:

The advance / decline line is very simple, it is the difference between the number of shares move higher move lower on a day compared to the number. So naturally if all things were equal, and "AD" line was, you would think that the market was right? Negative Absolutely, except that there is a problem. All things are not equal!

When the NASDAQ as a whole was in a full blown bear market, there were about 70 or so stocks that the index moved higher on a daily basis, but generally the losers won almost every day. How can that be? Because of this: Stocks are "weighted". Okay, so what does that mean? It means that some files more weight as far as their impact on the index.

Let's look at a tech heavyweight like MicroSoft. They are a major league "market capitalization" weighted stock, which means they are as big as they move higher, even if they only get a point, the number of points to add to the NASDAQ. On the other hand, little outfits such as XYZ, have no weight. So, four no name XYZ's fall on the day as a Microsoft profits! This is why you may be stunned, watching stock after stock create a new layer on the year, and yet have been up 50 points that day. NASDAQ But if you look at who was moved higher and the MSFT, IBM, INTC of the world, weighted, so they wore the index higher, even though twice as many who went up, actually went.

Most market technicians will tell you that we are in a lot of trouble if the AD line is negative for too long and in a way that we agree with that, but this is a different market than just a few years ago. Fund managers have so much power that they move the markets on a daily basis. When you are the manager of a billion dollar fund, you do not buy XYZ for your fund, you are buying the big names. So it's no wonder that only 70 + stocks go higher, while in 1000 fall in the day. So in a twisted way, the AD line is not a very clear description of the health of the market. A year or so ago, if you had seen the AD line you probably did not buy stocks. In October, November, December and January But at that time, the Nasdaq made the greatest progress of its history. Then on the NYSE was even worse, with the AD line in bad shape almost every day. So we can not just look at the AD line and come to the conclusion that the market does not move higher. Certainly we would enjoy more of the secondary players join in any market moves, but to just sit on your hands, because the little guys fall, while the big boys fly, will not any money in your account.

Remember people, until the arrival of the "401K" plan, fund managers are not the power they have today. Certainly an analyst could come and upgrade or downgrade a stock, but there was not enough to earn a lot done because large concentrated money. But when 401k plans became popular, stock funds found themselves with huge cash inflows 4 times a week or once a month depending on the plan. That covers literally billions of dollars for them to spend so naturally they all tend to "clump" and buy the same "leaders". That is why when a stock was hot like JDSU once was, it would go 150-300, split, run back to 300 and split again like clockwork. While JDSU was doing that, what do you think XYZ was doing? Not a lot! So, fund managers are truly one of the fundamental reasons the AD line can stink and still the market gets 100 points on the day.

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