The document discusses the advance decline line (ADL), which measures the cumulative difference between advancing and declining stocks on the NYSE. It notes that the ADL can diverge from the NYSE in the short-term, signaling when the market may be overbought or oversold. Traders are advised to look for short-term divergences between the trends of the ADL and the NYSE index to anticipate market corrections.

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Divergence – Advance Decline Line
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Advance Decline Line
Internal Market Indicator
Sometimes Called Breadth Indicator
“Measures Cumulative Sum Of The Difference Between
Advancing Stocks And Declining Stocks That Make Up
NYSE”
Moves Up When Index Has More Advancing Stocks
Moves Down When Index Has More Declining Stocks

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Why Is ADL Important?
NYSE, NASDAQ and S&P 500 Are Capitalized Weighted
– Allocates More Weight To Large Cap Stocks
ADL Is Cumulatively Weighted
– All Stocks Weighted Equally
What Does This Mean?
Market Indexes Move Based On A Handful Of Large
Stocks While The ADL Moves Based On All The Stocks
That Make Up The NYSE

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Divergence Analysis
Traders Should Look For Short Term
Divergence Between ADL And NYSE
NYSE Going Up – ADL Going Down
Stock Market Overbought
NYSE Going Down – ADL Going Up
Stock Market Oversold

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NYSE Swings Higher

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Advance Decline Line Swings Lower

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Stock Market Sells Off After Divergence

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NYSE Moving Higher

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Advance Decline Line Moving Lower

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NYSE Sells Off Next Few Days

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Things To Remember
Use NYSE Index
NYSE Advance Decline Line
Large Caps Drive Index
All NYSE Stocks Drive ADL
Index Leads But ADL Controls

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