Chart 2 shows a bullish divergence in the NYSE AD Line. Because the NYSE AD Line is based on the advance-decline statistics from the NYSE, it makes sense to compare its performance to the NYSE . Trading with the market internals such as the NYSE tick market breadth and advance decline line can lead to increased efficiency in your entry’s and exits.
These figures reflect actual dividends; they have not been adjusted for subsequent stock splits. For example, assume that a dividend is declared payable to stockholders of record on a given Friday. As current practice allows two business days for delivery of stock in a regular transaction on the NYSE, the Exchange would declare the stock "ex-dividend" as of the opening of the market on the preceding Thursday.
Anyone who bought it on or after that Thursday would not be entitled to that dividend. The seller of the stock would receive it. However, in a stock split, the NYSE may defer declaring the stock "ex-distribution" sold without the additional stock until after the payment date.
In each of the splits shown above, new certificates were issued for the additional shares and sent by the transfer agent to the registered shareholders. Fractional share certificates are not issued. In the 3 for 2 splits, a shareholder who had an odd number of shares before the split was sent a check for the value of one half of a share. Boeing is followed by a number of industry analysts, including the analysts listed below in alphabetical order by firm.
Bullish or bearish divergences in the AD Line signal a change in participation that could foreshadow a reversal. The actual value of the AD Line depends on the starting point for the calculation. The next calculation is the AD Line value for the previous period's value plus Net Advances for the current period.
The example above shows the AD Line calculation for 25 days beginning on April 15, The first value is simply Net Advances for that day The second value is lower because Net Advances for April 16th was negative Even though the actual value of the AD Line would be different if it began in January , the shape of the line for this calculation period would be exactly the same. It simply rises and falls as Net Advances rises and falls.
The shape and direction of the AD Line are important, not the actual value. The AD Line measures the degree of participation in an advance or a decline. An AD Line that rises and records new highs along with the underlying index shows strong participation that is bullish. An AD Line that fails to keep pace with the underlying index and confirm new highs shows narrowing participation.
Market strength is undermined when fewer stocks participate in an advance. Narrowing participation is often identified with a bearish divergence between the AD Line and the underlying index. On the downside, the market is considered weak when the AD Line moves to new lows along with the underlying index. This reflects broad participation in the decline. A bullish divergence forms when the AD Line fails to record a lower low along with the index.
This means fewer stocks are declining and the decline in the index may be nearing an end. Even though this bullish divergence is rather small and only encompasses a few weeks of trading, it foreshadowed an important low in July Larger bullish divergences can be found from October to March and from May to August These divergences foreshadowed important lows in the stock market.
The lower high in the AD Line in July set up the first bearish divergence because breadth did not confirm the index. Actually, there are two bearish divergences at work here. First, the AD Line did not exceed its summer highs. With the NYSE Composite forges higher highs during these timeframes, bearish divergences took shape because breadth did not confirm. This string of bearish divergences foreshadowed the January support break and the bear market of The advance-decline statistics have a few quirks that chartists should understand.
The Nasdaq is full of upstarts in industries ranging from biotech to technology to alternative energy. There may be huge upside potential, but there is also a risk of absolute failure. This means more Nasdaq stocks are prone to delisting. Companies that fail are removed from the index and replaced, but their negative effect on the AD Line remains.
Boeing is followed by a number of industry analysts, including the analysts listed below in alphabetical order by firm. These divergences can help chartists identify potential reversals in the underlying index.
Both indicators can be used to create AD Lines. This means fewer stocks are declining and the decline in the index may be nearing an end.