Saturday, February 25, 2012

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

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