The Dow Report: Advancers and Decliners
By Tim W Wood CPA, May 28, 2004
Last week I talked about the fact that advancing volume has been declining and that declining volume has been on the rise. I explained that this was a sign of distribution into a massive top. This week I want to look at advancing and declining issues. Below is a chart of the Dow Jones Industrial Average. The green indicator at the top is a 34 day moving average of NYSE advancing issues. The red indicator is a 34 day moving average of NYSE declining issues.
Notice that the advancing issue moving average topped out in June 2003 just as volume did. Please refer to last week's charts to see the volume lines. From the June top, advancing issues declined as price moved into the August 2003 intermediate term low. This is marked with a "w." This decline in advancing issues was accompanied by an increase in declining issues. This was all perfectly normal and expected behavior as the intermediate term low was being established.
Notice that the next price advance into the November intermediate term high was not accompanied by the same level of advancing issues. Also notice at the price top that declining issues were higher than at the June top. But now notice how the price advance into January and February saw an increase in declining issues and a decrease in advancing issues. The market then rolled over into the March 2004 intermediate term low and the next advance was born. This advance ran into immediate trouble as advancing issues failed to follow through and declining issues began to rise. In April you can see that the declining moving average line moved above the advancing issues moving average. It now stands at the highest level since 1998.
This is pretty much the same behavior that we saw last week in the advancing and declining volume averages. Looking back into 2002 and early 2003 you will see that when the declining issues moving average has moved above the advancing issues line it has been a sign of real trouble for the market. I suspect that this time will be no different.
The next chart below is also of the Dow Jones Industrial Average. The green indicator at the top is a 34 day moving average of AMEX advancing issues. The red indicator is a 34 day moving average of AMEX declining issues. My point for including this chart is to show that in spite of the alleged corruption of the NYSE data, the behavior of the AMEX data is pretty much identical to that seen by the NYSE data. In fact, the argument can be made that this data is actually even more troublesome. First, notice how the declining issue line has actually moved above the highs that were seen by the advancing issues line. The second troublesome issue is not shown in this chart because of space limitations but I checked my AMEX data, which goes back to 1978 and there has NEVER been an occurrence where the declining issues moving average has been this high. If this isn't a warning sign, I've never seen one.
The chart below is of the NASDAQ 100. Again, the green indicator at the top is a 34 day moving average of NASDAQ advancing issues. The red indicator is a 34 day moving average of NASDAQ declining issues. In this case too, you can see that the behavior of advancing and declining issues has been fairly consistent with what we have seen in the NYSE and the AMEX data.
I see the behavior of both the advancing and declining issues as well as that of advancing and declining volume to be a warning that trouble likely lies ahead for the market. If the current rally fails, this market is in all likelihood in deep trouble. If you are interested in a source that will provide you with in depth technical analysis that will also teach you about the markets, then you should consider Cycles News & Views. I cover the stock market, gold, the dollar and bonds. I incorporate Dow theory, Cycle theory and other technical concepts in my approach. My approach is also geared toward the big picture and not some day trading method that will have you jumping through hoops. For more information please visit www.cyclesman.com or call 318-342-9038.
Tim W. Wood
© 2004 Tim Wood