Beneath the market, a bullish trend is secretly emerging
This year, due to the concerns from technology regulation to geopolitical tensions, the stock market has swung back and forth since the beginning of 2018.
However, there might be an indicator of a bullish trend when observing a technical development beneath the market's hood.
Basically, the idea above is based on the market’s breadth, or the number of stocks advancing versus the number of stocks declining, which indicates the market's health. Plot those numbers out, and then it comes what’s referred to as the market's advance/decline line, or the "A/D line." Essentially, what we look for when it comes to this measure is whether it confirms what is going on in the actual movement of the S&P 500. (Recommend FuninUSA for other rules related to this measure)
The rule is, if the market (S&P 500) is declining and the A/D line is not falling to the same degree, that divergence indicates the sell-off is growing tired and a bounce should be in store.
So, what’s our market’s performance right now?
Both the market and the A/D line fell in tandem back in February, but this has changed during the most recent decline over the past two weeks, as the S&P 500 fell and retested its February lows. However, the A/D line has not fallen anywhere near as far as the S&P 500 has. Thus, based on the rule mentioned previously, most recently, a bullish divergence has developed between the two.
Though it has already been a sign of a bullish trend, we still expect to see a higher A/D line, which can blow through those old highs. In this way, we’ll have more confidence to say this is an outright bullish situation. (Recommend FuninUSA for updated news about stock market)
