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Wednesday
Dec282011

S&P 500 10-Day A/D Line Pauses Just Below Overbought Levels

After five straight days of gains, equities are down across the board today with 476 of the 500 stocks in the S&P 500 trading lower.  Who would have thought that Sears Holdings (SHLD) would be one of the few bright spots with a gain of just over 2%?  After yesterday's beat down, though, today's minimal gain is little consolation. 

Using the 10-day A/D line as a proxy, short term breadth stalled out today just short of overbought levels after hitting oversold levels just a week ago.  Looking at a chart of the 10-day A/D line this year provides another example of this year's crazy trading.  As shown, all year long we have seen sharp swings in this indicator.  When the indicator becomes overbought, it quickly reverses and becomes oversold and vice versa.  In a normal market, you will also see this indicator oscillate between overbought and oversold levels, but the moves tend to be more gradual in nature.  This year, however, market moves have been characterized by violent swings in both directions.  Just when you think the market is beginning to trend in one direction (up or down), it quickly goes the other way.

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