Advance/Decline Line

The Advance/Decline Line (A/D Line) is the best-known measure of market breadth: whether most stocks are taking part in a market move or only a few. It is a running total of the number of advancing stocks minus the number of declining stocks. A cap-weighted index like the S&P 500 can be pulled higher by a handful of giant companies, while the A/D Line gives every stock one vote. Comparing the two shows whether a rally or a decline has broad support.

How it is calculated

Each day, count the stocks that closed higher (advances) and lower (declines). Unchanged stocks are left out.

Net advances = advancing stocks - declining stocks
A/D Line     = previous A/D Line + net advances

The daily net advances figure, also called Advancing-Declining Issues, is the building block of many breadth indicators, including the McClellan Oscillator. On its own it is noisy: a strong day may show a large positive number and a weak day a large negative one, so traders often smooth it with a moving average and use the result as a short-term overbought and oversold gauge. The A/D Line adds the daily values up, so it shows the trend of participation instead of a single day.

The level of the line means nothing by itself, because it depends on the date the running total started and on how many stocks are counted. Only its direction and its highs and lows matter.

How to read it

• Confirmation. When an index and its A/D Line make new highs together, most stocks are joining the advance, and the trend is on firm ground.
• Bearish divergence. When the index makes a new high but the A/D Line does not, fewer stocks are carrying the rally. Analysts compare it to generals leading while the troops stop following. Such divergences have often appeared months before major market tops.
• Bullish divergence. When the index falls to a new low but the A/D Line holds above its previous low, selling is narrowing to fewer stocks.
• Trend of the line. Trend lines, moving averages and support and resistance can be applied to the A/D Line just as to price. A break in the line’s own uptrend is an early warning.

Settings and common mistakes

• Comparing values between indexes. An A/D Line for the NYSE and one for the S&P 500 have different scales. Compare directions and divergences, not numbers.
• What is being counted. Exchange-wide A/D figures include more than operating companies, such as preferred shares and closed-end bond funds, which react to interest rates. An A/D Line built from an index’s members tracks those stocks only.
• Timing tops with it. Divergences can last a long time before the index turns, and some never lead to a decline. Use them as a warning, not a sell signal.
• Ignoring volume. The A/D Line counts stocks, not money. The Advance/Decline Volume Line uses advancing minus declining volume instead and can confirm or question what the stock count shows.

Live chart: the S&P 500 index, daily, with the Advance/Decline Line of its members. The chart updates every trading day.

Screen for it on MarketInOut

Our formula language has the A/D Line as advdec. It is calculated from an index’s members, so it works as a market filter with @index or on the index symbols themselves. Stocks crossing above their 50-day average while the S&P 500 A/D Line is higher than ten days ago (when breadth is falling, the screen returns nothing):

exch(nyse,nasdaq) and type(stock) and price > 1 and advol(21) > 1
and (advdec > advdec@10)@sp500 and price ca sma(50)

Major US indexes whose A/D Line is higher than ten days ago:

ticker(dow.i, sp500.i, nasdaq.i, nyse.i, nasdaq100.i, russell2000.i)
and advdec > advdec@10

Related: Dow Theory, Trend lines, On Balance Volume.