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For the first time in more than 90 days, the NYSE Cumulative Advance/Decline Line – A line that incorporates the breadth of all securities traded on the NYSE – is sitting at a record high and new highs in the NYSE A/D Line have consistently preceded stock gains since 1928. Over the next three months, there were no losses greater than -8.5% at any point for any signal. On average, drawdowns were limited to only -1.6%.
This post by Lorimer Wilson, Managing Editor of munKNEE.com, is an edited ([ ]) and abridged (…) version of an article by Jason Goepfert for the sake of clarity and length to ensure a fast and easy read.
Just because cumulative breadth measures like the Advance/Decline Line are sitting at new highs, however, it does not mean stocks can’t decline. They can; they can even crash. The biggest difference, though, is that those significant declines usually began a prolonged “everything” rally in the A/D Line. They rarely happened when the A/D Line was just breaking out to new highs.
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