The Bull vs. Bear Debate Revisited
12/16/2010 2:00 pm EST
From the flash crash on May 6 through the end of August 2010, the bulls and bears battled, with many bears looking for a major stock market collapse in the latter part of August. During that period, I wrote extensively about how the NYSE Advance/Decline (A/D) line was acting stronger than the major averages, which in my view, was positive for the intermediate term.
I wanted to update this article written on July 13 because it discusses several good examples of why the market internals are important. Let’s first look at the current market analysis.Figure 1
The downtrend in the NYSE A/D line, which is a cumulative total of the advancing stocks minus the declining stocks, moved through its downtrend, line b, on July 13 (vertical line 1). This was a positive sign, and on August 9 (point c), the A/D line surpassed the April highs, reflecting the market’s internal strength. Towards the end of August, the S&P 500 dropped into the 1040-1050 support zone but held above the July lows. By comparing the relative slopes of lines e and d, you can also see that the A/D line was acting stronger than prices on the correction. Then on September 7, the A/D line moved above the previous high and broke its downtrend, line c, which was a very positive sign.
Currently, the A/D line has not yet moved above the November 5 highs, but it is very close. If the A/D line weakens further over the next few days, we may see a deeper correction before the end of the year. There are no signs yet of a change in the intermediate-term trend, however.
I hope you'll please take a moment to review the original Bull vs. Bear article for more in-depth analysis and instruction on following the market internals.
Tom Aspray, professional trader and analyst, serves as senior editor for MoneyShow.com. The views expressed here are his own.