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- Advance/Decline Analysis

Advance/Decline Technical Analysis (Breadth Analysis)

Advance Decline Ratios in 2002

Advance decline chart, technical, S&P 500 chart, indicators, analysis, charts, sentiment, Breadth analysis, indicator, trading, chart, S&P 500, technical analysis, 2002

The lowest A/D issues and A/D volume ratios in 2002

In 2002, there were 10 instances where the S&P 500 index reached critically low A/D issues and A/D volume ratios.

Table 1. Lowest critical A/D volume and A/D issues ratios. S&P 500 index. 2002.

Date	Critical A/D Issues Ratio	Critical A/D Volume Ratio	Magnitude of Uptrend (Recovery Rally)	Chart and Point Reference
1/29/2002	0.09	0.06	6.6%	Chart #1 - A
06/03/2002	0.05	0.03	0.9%	Chart #1 - B
07/02/2002	0.08	0.10	4.8%	Chart #2 - A
07/19/2002	0.07	0.13	7.7%	Chart #2 - B
08/05/2002	0.11	0.11	9.6%	Chart #2 - C
08/13/2002	0.11	0.10	9.2%	Chart #2 - D
09/03/2002	0.04	0.04	5.3%	Chart #2 - E
09/12/2002	0.10	0.12	1.8%	Chart #2 - F
09/19/2002	0.09	0.09	13.2%	Chart #2 - G
12/27/2002	0.06	0.08	6.8%	Chart #2 - H
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Chart #1: Lowest critical A/D volume and A/D issues ratios. S&P 500 index. January to June 2002. (In the bottom pane, A/D issues ratios are listed at the top and A/D volume ratios at the bottom).

Chart #2 - Point A:	On January 29 (point A), the S&P 500 index reached critically low readings for the A/D issues and volume ratios. Apart from a bounce of 6% which was achieved by mid-March, no further significant recovery took place.

Chart # 1 - Point B:	June 3 (point B) is the next date in 2002 where critically low A/D ratios occurred. In spite of the low sentiment readings, the index hardly bounced, and the market continued to push significantly lower. This is one of the rare occasions we identified where the S&P 500 index did not show a mid-term upward reaction to extremely low sentiment readings. However, point B is of great importance for the analysis of the long-term trend.

Chart #2: Lowest critical A/D volume and A/D issues ratios. S&P 500 index. July to December 2002. (In the bottom pane, A/D issues ratios are listed at the top and A/D volume ratios at the bottom).

Chart #2 - Point A:	Just as it had done previously on June 3, the market "ignored" critically low sentiment readings at point A (July 2). The S&P 500 index proceeded to gain 4.8% over the following two trading days. However, the index did not develop a mid-term recovery rally; it resumed its downtrend instead. Even though the S&P 500 did not show a substantial upward reaction following the critically low sentiment readings at this point, point A is of great importance for the analysis of the long-term trend.

Chart # 1 - Point B-G:	Trading was highly volatile between points B and G. Each time critically low A/D issues and volume ratios were reached, the S&P 500 recovered by 5 -10% over the following few days: From point B, the index recovered by 7.7% over 6 trading days. From point C, a recovery of 9.6% occurred within 4 trading days. Likewise, the S&P 500 gained 9.2% over 7 trading days after reaching point D. It rallied 5.3% in 6 trading days after hitting point E, but rose only 1.8% over 3 trading days from point F. Finally, after reaching critically low A/D issues and volume ratios at point G, the index achieved a gain of more than 13% over a three-month span. The large number of occurrences with critically low sentiment readings (i.e., 6 instances clustered over only 2 months) is an important factor in establishing a long-term trend analysis. It points to a heavily oversold market that is prone to a long-lasting recovery. Supporting this thesis is also the fact that two previous instances with critically low A/D issues and volume ratios (June 3 - see Chart 1- point B and July 2 - see Chart 2 - point B) had resulted in only minor (short-term) recovery rallies (as noted above).

Chart # 1 - Point H:	After reaching critically low A/D issues and volume ratios on December 27 (at point H), the S&P 500 index recovered by 6.8% over the course of the next 10 trading days. Following this rally, the index proceeded to decline again, establishing extremely low sentiment readings at the beginning of 2003.

We note:

From the above we can conclude that a cluster of critically low A/D issues and A/D volume ratios within a short time span is generally indicative of an extremely bearish sentiment. It reflects a market that is extremely oversold and thus prone to a long-term upswing.

Next: Advance/Decline in 2003

V. K.

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