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Advance-Decline Lines Still Confirming Market Highs

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We see plenty of indicators that tell us that there is a possibility for a correction, but not all indicators are sending that message. One in particular is the Advance-Decline Line (A-D Line). It is one of the first technical indicators ever developed, and it is simply a cumulative total of the daily advances minus declines. We also construct the Advance-Decline VOLUME Line in the same way, only using advancing and declining volume.

In a rising market we want the A-D Lines to confirm new price highs, and, as we can see on the chart below, that is exactly what is happening. If the recent A-D Line tops were lower than the September tops, that would be a bearish non-confirmation, but currently the A-D Lines agree with price movement. This is no guarantee that the market isn't forming an important top, but the A-D lines are saying it shouldn't be.

The chart also shows histograms of the daily net advances minus declines, which are very short-term in scope. As we can see, the bars have been contracting, showing fading internal support in that time frame.

Conclusion:  We can see that internals are weak in the short-term, but the longer-term A-D Lines agree with price action. When there is a conflict between indicators, we normally take the side of the longer-term indicators. So, while we have a short-term indication that a pullback is likely, the longer-term indicator says that the pullback is not likely to be very serious.

Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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