Tracking Advancers Versus Decliners

Sometimes during the trading day, you’ll witness what seems like a stock market anomaly:  the market indexes—the DOW, NASDAQ, and S&P—are moving in one direction, but the stocks you like to follow are marching toward the opposite goal line.

The indexes can be hurtling upward but the majority of stocks you’re watching, and many others besides, just vegetate, offering little or no opportunity to make money. That’s an anathema to making money trading stocks. What you desperately need is dependability, predictable stock movement in some direction, any direction, either up or down.

When the market turns logy, instead of looking at the market indexes, look at the ratio of advancers versus decliners. They’re likely to give a truer picture of what’s really going on.

As good as indexes are, they track relatively few of the stocks that actually trade on the major exchanges. That opens the opportunity for the blue chips stocks that make up much of the Dow index, to move in one direction while the remainder of the NYSE stocks move elsewhere.

The advance/decline ratio is a measurement of the number of stocks trading higher in a trading day minus the number of stocks trading lower. As a technical measure of market breadth, the Advance-Decline ratio can help you understand how the market as a whole is moving that day. For example, if the NASDAQ is up 10 points and the Dow is up 38, but the advance/decline ratio is negative (more stocks are down than up), smart traders start searching for stocks to short that day—regardless of the direction of the indexes.

And where to find these ratios? Simple. Some of the major stock trading sites track them. But the neatest, cleanest way to find them is on Yahoo by clicking this link. Should the link become outdated, go to Yahoo’s home Finance page and clock on Today’s Markets.