The Advance/Decline Line or ‘A/D Line’ for short, is the second most important of the internals. This indicator tells us the net sum of advancing stocks minus declining stocks.
The A/D Line is expressed: # of Advancing Stocks – # of Declining Stocks
There are roughly 3000 stocks listed on the NYSE and 3000 on the NASDAQ. An A/D Line reading of 1,500+ is very bullish and a reading of over 2,000 is extremely bullish. On the flip-side readings of -1500 and below are very bearish and readings below -2,000 are extremely bearish.
These extreme readings are indicative of trending days where once the market continues to trend all the way into the close. We look to the A/D Line in conjunction with the Breadth Ratio to confirm these trend days.
A day with 2,500 advancing stocks and only 500 declining stocks would yield a net of +2,000 (an extremely bullish reading). It would take a large catalyst to shift the market direction with a reading this bullish.
If on the open you continue to see the A/D Line moving +500, +700, +900, this is a sign of market strength. If however, the market is moving higher, but the A/D Line is moving lower, a divergence has occurred and could be a sign of a market turn.
Here is a Video Tutorial on setting up the chart below.
It’s important to look to the other market internals for confirmation as one indicator alone is not sufficient to confirm a move.