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A/D
Indicators |
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Indicators based on the "advances" and "declines" concept -
The lowest A/D issues and A/D volume ratios in 2002
In 2002, there were 10 instances where the S&P 500 index reached
critically low A/D issues and A/D volume ratios.
| Table
1. Lowest critical A/D
volume and A/D issues ratios. S&P 500 index. 2002.
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Chart #1:
Lowest critical A/D volume and A/D issues ratios. S&P 500 index.
January to June 2002. (In the bottom pane, A/D issues ratios are
listed at the top and A/D volume ratios at the bottom).
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| Chart #2 - Point A:
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On January 29 (point A), the S&P 500 index reached
critically low readings for the A/D issues and volume ratios. Apart from a
bounce of 6% which was achieved by mid-March, no further significant recovery
took place. |
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| Chart # 1 - Point B:
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June 3 (point B) is the next date in 2002 where
critically low A/D ratios occurred. In spite of the low sentiment readings, the
index hardly bounced, and the market continued to push significantly lower. This
is one of the rare occasions we identified where the S&P 500 index did not show
a mid-term upward reaction to extremely low sentiment readings. However, point B
is of great importance for the analysis
of the long-term trend. |
Chart #2:
Lowest critical A/D volume and A/D issues ratios. S&P 500 index.
July to December 2002. (In the bottom pane, A/D issues ratios are
listed at the top and A/D volume ratios at the bottom).
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| Chart #2 - Point A:
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Just as it had done previously on June 3, the market "ignored”
critically low sentiment readings at point A (July 2). The S&P 500 index
proceeded to gain 4.8% over the following two trading days. However, the index
did not develop a mid-term recovery rally; it resumed its downtrend instead.
Even though the S&P 500 did not show a substantial upward reaction following the
critically low sentiment readings at this point, point A is of great importance
for the analysis of the long-term trend. |
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| Chart # 1 - Point B-G:
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Trading was highly volatile between points B and G. Each time
critically low A/D issues and volume ratios were reached, the S&P 500 recovered
by 5 -10% over the following few days:
From point B, the index recovered by 7.7% over 6 trading days.
From point C, a recovery of 9.6% occurred within 4 trading days. Likewise, the
S&P 500 gained 9.2% over 7 trading days after reaching point D. It rallied 5.3%
in 6 trading days after hitting point E, but rose only 1.8% over 3 trading days
from point F. Finally, after reaching critically low A/D issues and volume
ratios at point G, the index achieved a gain of more than 13% over a three-month
span.
The large number of occurrences with critically low sentiment
readings (i.e., 6 instances clustered over only 2 months) is an important factor
in establishing a long-term trend
analysis. It points to a heavily oversold market that is prone to a
long-lasting recovery. Supporting this thesis is also the fact that two previous
instances with critically low A/D issues and volume ratios (June 3 – see Chart
1- point B and July 2 – see Chart 2 - point B) had resulted in only minor
(short-term) recovery rallies (as noted above). |
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| Chart # 1 - Point H:
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After reaching critically low A/D issues
and volume ratios on December 27 (at point H), the S&P 500 index
recovered by 6.8% over the course of the next 10 trading days. Following
this rally, the index proceeded to decline again, establishing extremely
low sentiment readings at the beginning of 2003. |
We note:
From the above we can conclude that
a cluster of critically low A/D issues and A/D volume ratios within a
short time span is generally indicative of an extremely bearish sentiment.
It reflects a market that is extremely oversold and thus prone to a
long-term upswing.
Next
V. K.
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