NY AD Line and NYSE Rule Changes

Even as we momentarily pause to take a breather, the markets continue on their upward climb. The chart below includes the McClellan Summation index which recently flirted with the 5000 level. I think it is important to note that two changes in the NYSE trading rules have altered the behavior of the AD Line.

In 1991, the NYSE switched over to decimal trading which has both increased trading volumes and changed the rate of ascent of the AD Line. Decimalization has increased the likelihood that a stock's close will be up or down on the day. Since aggregate down moves tend to be larger than up moves it means that the upward trend on the AD Line should be steeper, which is what we see. The AD Line is in new high territory and as a result I expect to see the SUM Index make new historic highs over +6000 this year before the market finally peaks.

The $SPX, NYSE AD Line and the SUM Index
The chart shows the dates of two NYSE rule changes which
have affected trading volumes and the AD Line.
Click to enlarge

NYSE AD-Line Hitting New Highs.

The NYSE Cumulative Advance-Decline Line from March 2009
Making new highs and riding along the upper Bollinger Band
Not a top yet
Click to enlarge

A bit overbought but still headed higher

The bigger perspective on this market move.
The SPX, MCO, 10% Index and Summation Index.
The period covered is from late 2008 to 2/3/2012.
Click to enlarge

In spite of all the negative commentaries, the AD Line continues to grind higher along with the market indexes. No doubt we will have a correction at some point but I don't think it will be the start of a new bear market.

The bottom chart is the Summation Index which is an intermediate term trend indicator. I've included two moving averages, an 80 day and a 160 day. Look back at how the SUM index and its moving averages behaved, at post market turing points and then compare them with the current configuration. We are about a month into a strong upward move. One should expect the rate upward to moderate somewhat fairly soon, but it also looks like the SPX is headed back to the old highs by the end of the year.

MCO 2-2-2012

Same old, same old. Once in a lifetime.
The SPX with the McClellan Oscillator
Click to enlarge