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ABI = | (Number of Advancing Stocks - Number of Declining Stocks) |

Because the ABI is an absolute value, it will always be positive. The chart is a representation of the volatility in the spread between advances and declines. The ABI can be smoothed by using a moving average to draw longer-term trend lines. A fast-paced, choppy chart of the ABI can indicate a choppy market.

The ABI ignores the direction in which prices are going. Typically, large numbers suggest that volatility is increasing, which is likely to cause significant changes in stock prices during the coming weeks. If the ABI index readings have low values, this indicates that no changes are taking place. It shows only market activity. In Fosback's book, Stock Market Logic, he mentioned that high values historically have caused higher prices 3-12 months later. Fosback found that a highly reliable variation of the ABI can be created by dividing the weekly ABI by the total issues traded. If, after 10 weeks, a moving average is calculated and the readings are less than 15%, they are called "bearish." Readings higher than 40% are called "bullish."

Chart 1: S&P 500 - ABI (Absolute Breadth Index)

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