Breadth Advance/Decline
Definition:
The Breadth Advance/Decline is a market breadth indicator developed by Martin Zweig. It is an indicator designed to track the momentum of the broader market and anticipate large upswings or downswings in price. This is based on the concept that the number of advancing securities accompanying a market rise is positively correlated with the probability for further advances. Likewise, the number of declining issues pushing the market downward can be correlated with the probability for further declines. The Breadth Advance/Decline is calculated by taking the 10 day simple moving average of the number of advancing issues and dividing that number by the sum of the total amount of advancing issues and the total amount of declining issues on the New York Stock Exchange. The neutral point of the Breadth Advance/Decline indicator is .500 in a range of zero to one.
Interpretation:
There are several common modes of interpretation for Breadth Advance/Decline. One type of interpretation involves extremely bullish or bearish behavior. When the Breadth Advance/Decline goes above .66, it can be considered very bullish conditions. If it falls below, .37, it can be considered very bearish conditions. Other indicators can verify whether these conditions warrant an overbought/oversold market or whether the market will continue in its current trend.
A second type of interpretation involves the rapidity of a rise or decline in the indicator. A rapid decline (defined as approximately .2 with 10 days) can indicate that the market has shifted from a simply overbought market to one of true weakness, potentially forecasting a prolonged bear market. A steep increase (defined as approximately .2 within 10 days) can indicate that the market has shifted from an oversold market to one of robust strength, potentially forecasting an extended period of strong growth. Remember, the Breadth Advance/Decline studies the entirety of the NYSE, and not individual stocks.
A final type of interpretation involves a crossover of the neutral line.
When the indicator goes from negative to positive (crosses above .500) a bullish climate can be interpreted for the market, and confirmed by other indicators for individual stocks or industries.
When the indicator goes from positive to negative (crosses below .500) a bearish signal can be interpreted for the market, and confirmed by other indicators for individual stocks or industries.
