What is the Advance-decline line?
Traders who want to analyze the overall trends of the broad market can turn to the S&P 500 advance-decline line. The advance-decline line is an indicator used to show the number of individual stocks that are tracking the performance of the overall market and can be used daily with other technical tools to confirm trends or identify price movements.
Rising shares are the number of shares traded above the previous day’s closing price and falling shares are the number of shares traded below the previous day’s closing price. This indicator is particularly useful in this market environment as S&P 500 returns are often skewed upwards by the technology sector and especially the FAANG+ stocks.
When major indices like the S&P 500 rise, an increasing advance-decline line can confirm the trend of the overall market as opposed to a sector or even an industry of stocks carrying the rest of the market. Since the S&P 500 index is weighted on a market value, the advance-decline line counts all components of the S&P with equal weight. Technical analysis like this is absolutely essential to use, but it is still important to keep an eye on economic data such as job figures and new unemployed people.
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