The chart below illustrates an instruction in bear market analytics - the advance decline line peaks and curls over way before the major index. As the major index climbs its way to its final peak, more and more of its underlying shares start falling into their own bear markets until in the end the major index is propped up by a handful of large-cap counters. The large cap counters that experience this herding, mainly by institutions taking flight to safety as economic times toughen, can vary. Last bear market was resource counters, this bear market it was Rand hedges.
In the end, the game of musical chairs must end as the last remaining shares reach dizzy valuations that even institutions seeking safety can no longer stomach and the major index collapses.
Until the advance decline line can reverse its trend and confirm highs with the JSE, consider the bear alive and kicking.
GEEK NOTE: 10-day Advance Decline Line (AD Line) = number of shares that went up in the last 10 days minus the number of shares that went down in the last 10 days, added to yesterday’s value. Starting value of AD Line is academic, pick any number. We picked 5,000 in the above example. AD Line rising = more shares going up than down. AD Line falling = more shares falling than rising.
Dwaine van Vuuren
RecessionAlert, Sharenet Analytics
Dwaine van Vuuren is a full-time trader, global investor and stock-market researcher. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT.com (US based) and PowerStocks Research (now Sharenet Analytics) into companies used by hundreds of hedge funds, brokerage firms, financial advisers and private investors around the world. An enthusiastic educator, he will have you trading and investing with confidence & discipline.