NYSE AD Line Positive Divergence Means New High for S&P 500 DJIA
I don't usually pay much attention to the NYSE Advance/Decline line, but right now I am. It is doing something very rare. It is creating a positive divergence with the S&P 500 and Dow Jones Industrial Average indexes. If you are not sure what this indicator is, or what positive divergence is, please ask.
When the NYSE AD line makes a new high the index tends to follow nearly all of the time. A positive divergence like this has only occurred 5 times in a correction (not including bear markets) since 1940! All 5 times the index has made a new high inside of 5 months, and 4 out of 5 times inside three months. The positive divergence became apparent about three weeks ago...so the signal suggests a new high inside of the next two months for the indexes.
If we include bear markets (the big market declines) positive divergences in the NYSE AD line have produced major new swing highs in the index 9 out of 10 times since 1940, although due to the magnitude of the drop the price has to recover from, it typically takes about 6 months for the index to record a new major swing high again (major swing highs are used instead of all-time highs, in this case, because it took nearly 3 decades to fully recover from the 1929 crash).
Positive divergence on the AD line (compared to the S&P 500 or Dow) is rare. It has a good track record, so it is worth paying attention to when it occurs. This time could be different. We shall see.
Lowry Research has loads of information on the AD line, it's historical significance, and multiple ways to use it.
Join my free swing trading community on Facebook. Engage, learn, and share with other traders: facebook.com/groups/528129224671978/
When the NYSE AD line makes a new high the index tends to follow nearly all of the time. A positive divergence like this has only occurred 5 times in a correction (not including bear markets) since 1940! All 5 times the index has made a new high inside of 5 months, and 4 out of 5 times inside three months. The positive divergence became apparent about three weeks ago...so the signal suggests a new high inside of the next two months for the indexes.
If we include bear markets (the big market declines) positive divergences in the NYSE AD line have produced major new swing highs in the index 9 out of 10 times since 1940, although due to the magnitude of the drop the price has to recover from, it typically takes about 6 months for the index to record a new major swing high again (major swing highs are used instead of all-time highs, in this case, because it took nearly 3 decades to fully recover from the 1929 crash).
Positive divergence on the AD line (compared to the S&P 500 or Dow) is rare. It has a good track record, so it is worth paying attention to when it occurs. This time could be different. We shall see.
Lowry Research has loads of information on the AD line, it's historical significance, and multiple ways to use it.
Join my free swing trading community on Facebook. Engage, learn, and share with other traders: facebook.com/groups/528129224671978/
Cory Mitchell, CMT
Stock and forex trading insights at tradethatswing.com/
Stock and forex trading insights at tradethatswing.com/
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