A-D Ratio Strength

     Some analysts have stated that the A-D has been weaker than the Dow for a couple of months and that this is an evil harbinger for the market, meaning that a rally that has only a relatively few large cap stocks advancing while the majority of issues languish is a vulnerable market. If that were actually the case, it would be a precarious situation. I would describe the market action/price relationship between the A-D line and the Dow like this: On April 23 the Dow and the A-D line both made new highs. The next trading day, the 26th, the Dow was unchanged while the A-D was slightly lower. On May 3 the Dow completed the right shoulder of its its 2 1/2 week Head and Shoulders pattern by closing 50 points lower than its closing peak. On this same day the A-D ratio made the right peak of a double top. On the rebound from the May 7 low, the A-D line has performed, from what appears on the charts from Stockcharts.com posted on that site May 13,  about equally strongly as the Dow, if not actually a little more powerfully. It is really the A-D ratio which has been leading the price indexes up during the entire rally from the March 10, 2009 lows. I really can't see any basis for saying that the A-D ratio has been lagging the Dow for even the last few weeks, let alone the last few months.

     Having said that, I certainly agree that the number of distribution days is a matter for deep concern, as is the related problem of high volume on down days and lower volume on up days that has been in evidence pretty much during the entire rally from the March 10, 2009 lows. That is why I have dubbed this the "Paul Dysart Market", a reference to Dysart's Negative Volume Index which nobody believes in anymore. Dysart believed that the "big and smart money" preferred to accumulate stocks on quiet days of declining volume so as not to attract attention and make it more expensive to accumulate its positions. This resembles the way large gold accumulators are operating in "the stealth gold bull market", as Richard Russell has described it. However, the stock market rally had come to attract much more attention and belief than the gold bull market in the weeks preceeding the recent mini-crash.  I admit that this Negative Volume concept does contradict the supply/demand logic of the on-balance volume theory and its indicators in their various incarnations. This paradox raises the question of how stocks can advance when more shares are sold on declining price trades than on advancing price trades. But somehow, it does seem to manage to work for particular time periods.

     The A-D derived McClellan Oscillator made a low on May 9 of 2009, the lowest it has fallen as far back as the Decision Point Chart shows, which is May of 2009. The Summation Index, which is the cumulative total of the the daily McClellan Oscillator Readings, is still 450 points above its Mid-February 2010 lows but steepened its downward direction May 13 with a wider downside "gap" between plotted points. For the Summation Index to fall to a deeply low area, the McClellan Oscillator itself must persistently remain in negative territory for many days. And for the McClellan Oscillator to do that, there must be frequently recurring strongly negative days of declines over advances without much of an intervening rally in the A-D line. If the McClellan Summation Index were destined to fall to the 0 area or below, that would imply to me a further significant loss in the price Indexes, given what I have seen, in the context of this particular correction, of most indexes' propensity to decline sharply in proportion to a given extent of A-D decline.