iInvest® Stock Market
- Advance-Decline Lines giving a buy signal
- ADX Indicator giving a buy signal
- University of Michigan Consumer Sentiment Survey giving a buy signal
Advance-Decline Lines giving a buy signal
As most U.S. stock market indices are making new all-time highs, including the Nasdaq, S&P 500, Russell 2000 and Wilshire 5000, the NYSE and the DOW are lagging the overall market.
They have not reached new highs yet, but the NYSE Advance-Decline Line and the DOWAdvance-Decline Line tell a different story, as they both have made it to new highs
The Advance-Decline Line is a stock market technical indicator used by investors to measure the number of individual stocks participating in a market rise or fall.
This often-leading indicator gives us an idea of the overall internal breadth of the index, and can also help us spot trend reversals in the stock market when the indicator creates a divergence*.
NYSE and DOW versus their Advance-Decline Line
*An Advance-Decline Line Divergence is when the stock market index moves in one direction while the Advance-Decline Line on that index moves in the opposite direction.
If the index moves up while the Advance-Decline Line moves down, the index may be misleading about the true direction of the overall market, as happened toward the end of the US Dot-com bubble in 1999–2000, when the indices continued to rally while the Advance-Decline Line diverged downward starting at the beginning of 1999.
Such negative divergence was also seen toward the end of the roaring twenties bull market, during 1972 at the height of the Nifty Fifty market, and starting in March 2008 before the late-2008 market collapse.
ADX Indicator giving a buy signal
An indicator called ADX (Average Directional Index) is used to determine the underlying strength of a trend. It is also used to help spot trend reversals and the underlying strength behind those moves and the overall trend itself. TheADX Line used along with +DI (Positive Directional Indicator) and -DI (Negative Directional Indicator), this ADX Indicator can be a powerful tool.
Sample ADX Indicator
Beginning in August 2018, a STRONG BUY is noticeable looking out several weeks/months for the S&P 500.
The ADX Line is settling in relatively low territory compared to the last several months, while +DI significantly crossed above-DI simultaneously, showing not only the strength in the underlying trend, but also showing a trend in its early stages based on history.
Current S&P 500 chart and ADX Line(w/+DI and -DI)
University of Michigan Consumer Sentiment Survey giving a buy signal
Recently, Rennie Yang from Markets Tells noticed the University of Michigan Consumer Sentiment Survey topped 97 in September. In fact, the survey came in at 100.1, it’s highest reading in years.
Readings this high tend to bode well for stocks over the following year. Since 1980, there have only been 12 other months in which the survey topped 97 for the first time in three months. All but one led to a higher S&P 500 one year later, with an average gain of 15.8%.
Written by Craig Dillon
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