Advance/Decline Quotes

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The lowest A/D issues and A/D volume ratios in 2002-2003

During the index's long-term downtrend between June 2002 and June 2003, there were 15 instances where critically low A/D issues and A/D volume ratios occurred on the &P 500 index.

Chart 1: Lowest critical A/D volume and A/D issues ratios in relation to a long-term index reversal point. S&P 500 index. 2000 - 2005.

As opposed to 2002 (see an example) and 2003 (see an example), Chart 1 clearly illustrates that a high number of incidences of critically low sentiment readings within a relatively short time span may be associated with the existence of a long-term support level. This leads us to conclude that the unusually high number of critically low A/D issues and A/D volume ratios over a short time span may serve as an excellent indicator for a market that is heavily oversold and thus prone to a lasting upside reversal.

Taking into consideration the 1999-2000 example (between 1999 and 2000, only two instances of critically low A/D issues and A/D volume ratios were recorded for the S&P 500 index), we have devised a simple long-term trading strategy based on the two Advance/Decline indicators used above:

1. An unusually low number of critically low A/D issues and A/D volume ratios over an extensive period of time may serve as an excellent indicator for a market that is prone to reversing from a long-term uptrend to a long-term downtrend.
2. An unusually high number of critically low A/D issues and A/D volume ratios over a relatively short time span may serve as an excellent indicator for a market that is prone to reversing from a long-term downtrend to a long-term uptrend.