Advance-decline line

Each session, the number of constituents that closed higher is counted, the number that closed lower is subtracted from it, and the difference is added to a running total carried forward from the previous session. The result is a cumulative line. Its absolute level means nothing, because the starting point is arbitrary. Only its direction, and its behaviour relative to the index it is drawn beside, carry information.

It exists because a capitalisation weighted index can rise while most of its constituents fall. A handful of very large companies can carry the calculation on their own, and the index level alone cannot distinguish that from a rise in which nearly everything participated. The breadth line separates the two, and the conventional reading is that an index making new highs while the line does not is described as a narrowing advance.

Three details limit it. Unchanged issues are ignored, so a session in which little moved registers as an ordinary one. The constituent list changes as companies are added and removed, so a long history is not measuring a constant population. And a line built on one exchange is not comparable with a line built on another. Practitioners also disagree over whether a divergence has any predictive content or merely describes what has already happened, and the convention is repeated far more often than it is tested.