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A cumulative indicator creates a running total of the periodic values for an indicator. Basically, this indicator adds the periodic value when positive and subtracts the periodic value when negative. While cumulative can be applied to any symbol in the StockCharts.com catalog, this selection will produce a straight line when applied to stocks, ETF, indices or similar securities. The S&P 500, Microsoft or the Finance SPDR are always positive so the cumulative line will simply keep moving higher in a virtual straight line.
The cumulative line is best suited for breadth indicators that fluctuate above/below the zero line on a regular basis. Net Advances (advances less declines), Net Advancing Volume (advancing volume less declining volume) and Net New Highs (new highs less new lows) are best suited. A cumulative line of Net Advances forms the AD Line. A cumulative line for Net Advancing Volume forms the AD Volume Line. A cumulative line for Net New Highs forms what could be called the Net New Highs Line.
The chart below shows the AD Line and the AD Volume Line for the Toronto Stock Exchange (TSE). The AD Line is the cumulative of the TSE Net Advances ($TOAD). Gotta love that symbol! THE AD Volume Line is the cumulative of the TSE Net Advancing Volume ($TOUD). The absolute values for the AD Line and AD Volume Line are irrelevant so users can disregard the numbers of the right scale. These values depend on when the calculation began. Chartists just need to focus on the characteristics of the line plot. Namely, determine the trend and compare it to price action in the underlying index.
