Breadth check

BREADTH CHECK

Advance/Decline (A/D) lines can provide a more comprehensive view of overall market participation and sentiment.

Of note, this July, the S&P 500 index SPX, Nasdaq 100 index NDX, and NYSE Composite NYA have all made fresh record highs.

Along with this, the daily A/D lines of these indexes have all confirmed these thrusts, and have also pushed into record high territory.

Meanwhile, the Nasdaq Composite IXIC has also thrust to new highs this month. However, its A/D line, on a longer-term basis, presents a very different picture from those of these other indexes:

The Nasdaq A/D line is in a long-term down trend. In fact, when the market was putting in a major bottom on a closing basis on April 8 of this year, this Nasdaq breadth measure hit a record low.

Since then, however, the Nasdaq's A/D line has, at least, been directionally in gear with the Composite's rise.

On Wednesday of this week, the A/D line ended at its highest level since December 26, 2024.

Since the 2008 low, and ignoring the A/D line's absolute level on a longer-term basis, a number of the Composite's significant declines did develop in the wake of an intermediate-term divergence with the breadth measure.

Therefore, the potential for the Composite to raise another white flag may not intensify until the breadth measure's rise off its April trough either sees a sharp coincident stumble, or indeed, some period of divergence.

(Terence Gabriel)

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