Key Breadth Indicators Affirm Long-term Uptrend


The S&P 1500 AD Line ($SUPADP) and the S&P 1500 AD Volume Line ($SUPUDP) hit new highs to confirm the overall uptrend. This is significant for two reasons. First, a bearish divergence is not possible. A bearish divergence forms when the indicators fail to confirm a new high and turn lower. Second, new highs signal broad internal strength within the S&P 1500. Keep in mind that the S&P 1500 consists of the S&P Small-Cap 600, S&P MidCap 400 and S&P 500. This makes the S&P 1500 a very broad and balanced index that represents the "stock market". Even though the S&P Small-Cap 600 is lagging, the S&P MidCap 400 and S&P 500 are pulling enough weight to keep these indicators strong. In short, the breadth cup is half full, not half empty. 

The first chart shows the AD Line forming a higher low in early August and edging above its early July high on Monday. This new high confirms the new high in the S&P 1500 and breadth shows broad internal strength. In other words, majority of stocks are participating in this advance. 

The second chart shows the AD Volume Line also hitting a new high to affirm the long-term uptrend. In fact, notice that this uptrend is steeper and the indicator hit a new high well before the AD Line. The AD Volume Line is like a money flow indicator because it is a cumulative measure of net advancing volume (advancing volume less declining volume). Also note that large-caps have higher volume than small and mid caps, and this makes the AD Volume Line a large-cap indicator.   

Good trading and good weekend!
Arthur Hill CMT

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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