Wednesday, February 26, 2014

The A-D line leads the way

As explained in Friday’s [Feb. 21] report, the NYSE Advance-Decline (A-D) line is the key indicator to watch right now.  It predicted a rally to new highs for the major indices last week and it continued its march to new highs on Monday (see below).  As I wrote in the Feb. 21 report, “As a general rule, leadership in the A-D line tends to be bullish and usually precedes a new high in the major indices.”  Despite the intraday pullback on Monday, the indices should push higher this week based on the clear leadership of the A-D line. 

It’s also worth mentioning that NYSE market breadth continues to show improvement.  The number of stocks making new 52-week highs has been gradually expanding for the last two weeks and on Monday hit a year-to-date high of 254.  Meanwhile the number of new 52-week lows has remained low, with only 16 new lows for Monday.  That’s well below the “danger zone” of 40+ that normally signifies internal weakness.  The new highs-new lows is telling us that internal selling pressure is virtually nil right now, and that’s conducive for a buoyant stock prices.

[Excerpted from the Feb. 24 issue of Momentum Strategies Report]