Monday, January 19, 2015

Q&A: Moving averages and the A-D line

Question: Why do you use 60-day and 150-day moving average rather than 50-day and 200-day MAs?  And do you have a way of computing the NYSE Advance-Decline (A-D) line sans the bond funds?

Answer: I’ve found the 60-day MA to be more responsive for the major indices than the 50-day MA, which everybody uses.  Also, quite a few individual stocks and industry groups seem to be more responsive to the 60-day MA.  The 150-day MA is a good one to use for evaluating the intermediate-term trend for the S&P 500 and the XAU Gold Silver Index.  Of course the 200-day MA is still useful for the major indices, but right now the S&P is testing the 150-day MA which makes it more important right now.  The 150-day MA also answers to the 30-week MA, which is used by many fund managers and therefore has technical significance.

I’m not sure there is a way of obtaining the NYSE A-D line without bond funds, but then again I’m not sure it would be any more helpful.  My research over the years indicates that the A/D line is quantitative, not qualitative.  In other words, it’s the number of advancing issues over declining issues that matters most, not the types of stocks or funds which are advancing or declining.