Lesson 12 - Breadth Indicators

What is the Advance-Decline (A/D) Line?

A cumulative total of the net advancing minus declining stocks, used to measure market breadth.

How is a buy/sell signal generated using the A/D line and its 32-week moving average?

✅ Buy Signal:

When the A/D line is more than 4% above its 32-week moving average, it’s a good time to buy.

(Historically, this setup led to +19.3% annual returns.)

🚫 Sell Signal:

When the A/D line falls more than 3% below its 32-week moving average, it’s a warning to sell or get cautious.

(Historically, this led to −11.2% annual returns.)

What is the McClellan Oscillator?

The difference between the 19-day EMA and 39-day EMA of the daily A-D data.

What do extreme McClellan Oscillator values indicate?

+100 to +150 = overbought; −100 to −150 = oversold.

Why is the McClellan Oscillator effective?

It's a sensitive measure of momentum and breadth that often turns before price reversals.

What is the McClellan Summation Index?

A cumulative total of McClellan Oscillator values; shows long-term breadth strength or weakness.

What does the Arms Index (TRIN) measure?

The ratio of advancing/declining issues divided by up/down volume; gauges volume support for price moves.

What does a high TRIN value mean?

Heavy volume in declining stocks = potential market bottom (oversold).

What is the Volume Thrust indicator (Ned Davis version)?

Ratio of 10-day up volume to down volume.

What are the thresholds for Volume Thrust signals?

>1.48 = bullish thrust (avg +38.9% return); <1.00 = bearish signal (avg −7.4%).

What is a 90% Downside Day (NPDD)?

A day where downside volume and points lost each make up ≥90% of totals; indicates panic selling.

What signals a major reversal after NPDDs?

A 90% upside day or two 80% upside days within 5 trading days.

How are Net New Highs and Lows used?

Buy when daily new highs > new lows; sell when new lows > new highs.

Why are net new highs/lows useful?

They reflect participation and breadth of a rally or decline; can show divergence before a reversal.

What is the High-Low Logic Index?

The lower of (new highs/total issues) or (new lows/total issues), smoothed over 10 weeks.

What does a high High-Low Logic Index mean?

Market confusion (both highs and lows elevated) — usually bearish.

What does a low High-Low Logic Index mean?

Market is trending strongly in one direction — usually bullish.

Downside Volume

refers to the total volume of shares traded on a day when the stock closed lower than the previous day’s close.

reflects capitulation, or the moment when everyone gives up and sells, no matter the loss.