The Advance-Decline Line, which generated a whole bunch of negative divergences in July-August, has now managed to generate a positive divergence. pic.twitter.com/Lzs9j5696i
— Walter Deemer (@WalterDeemer) October 13, 2021
Today’s Chart of the Day was shared by Walter Deemer (@WalterDeemer). It’s a chart of the NYSE Advance-Decline Line over the past year, along with the S&P 500 below. The Advance-Decline Line is a popular breadth indicator that often leads the market higher or lower. Over the summer, the Advance-Decline line was diverging negatively from the S&P 500. A negative divergence occurs when the S&P 500 makes a new high, while the Advance-Decline Line fails to do the same. That negative divergence ended up materializing into the mild pullback that we’ve seen in recent weeks. On a brighter note, Walter points out that the Advance-Decline Line is now diverging positively. As you can see, the S&P 500 made a lower low last week, while the Advance-Decline Line made a higher low. This is just one data point to consider, but it certainly favors the bulls.