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When Does The Market Breakdown Again? The Answer Is In The A-D Line

Submitted by Tyler Durden on 11/11/2015 16:58 -0400

A few days ago we explained just how the dramatic divergence between the broader market and the number of stocks which are actually up and leading this rally has become, when we showed a chart of the NYSE advance/decline line overlaid on the S&P500.

The simple explanation of the above is that there are fewer and fewer stocks propelling the market higher. In fact, as we showed yesterday, if one removes just 8 stocks, AMZN, NFLX, FB, GOOG, NKE, ORLY, SBUX and HD, the S&P500 would be the red for the year.

Today, BofA's new chief technician Stephen Suttmeier picks up on this dramatic divergence and gives out the following warning: "A month-long bearish divergence for the US 15 most active advance-decline line has the potential to limit S&P 500 upside." His details:

The weekly global A-D line of 73 country indices in US Dollars peaked on September 5, 2014 vs. a May 15 peak for the weekly closing price of the MSCI ACWI Index, which is also based in US Dollars. The rise in the US Dollar has had a bearish impact on global equity market breadth (many equity markets have done much better in local currencies) and this A-D line has not confirmed the global equity market rally. This is a major bearish breadth divergence and a classic sign of diminishing breadth for global equity market indices.

Suttmeier then warns what our readers are already aware of, however extended to the global market, namely that there now exists "a major bearish divergence for global A-D line in US Dollars"

The weekly global A-D line of 73 country indices in US Dollars peaked on September 5, 2014 vs. a May 15 peak for the weekly closing price of the MSCI ACWI Index, which is also based in US Dollars. The rise in the US Dollar has had a bearish impact on global equity market breadth (many equity markets have done much better in local currencies) and this A-D line has not confirmed the global equity market rally. This is a major bearish breadth divergence and a classic sign of diminishing breadth for global equity market indices.

Most importantly, it appears that historically changes in the A-D line have been a useful advance indicator of major market breakdowns. To wit:

Watch big support on the most active A-D line

Big breakdowns in the most active A-D line preceded or coincided with big breakdowns for the S&P 500 in 2000 and 2007. The key for the US equity market in late 2015 and into early 2016 is for the most active A-D line to hold its support at the August, July, and December 2014 lows. A failure to do so would put in a top for this advance-decline line and increase the risk for a deeper US equity market pullback.

Which means that the central banks, whose only mandate is to keep the global market from crashing, will have to buy - either directly like the SNB and BOJ or indirectly/spoof like the NY Fed via Citadel - much more than just the E-mini and a handful of stocks to give the impression that the market is healthy when in fact, it is not.

Whether they can pull this off will determine if the Fed's long telegraphed "rate hike" is executed, or if come December 16 Yellen chickens out one more time, and the next thing the market will have to look forward to is the inevitable arrival of negative interest rates.

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Wed, 11/11/2015 - 15:59 | 6778493 Maplehood

NYSE A-D looks just like high yield debt. Nasty divergence

http://www.goldsqueeze.com/home/huge-divergence-developing-between-debt-...

Wed, 11/11/2015 - 17:30 | 6778958 tgatliff

Why do people still think fundamental indicators apply? Meaning, if the BOJ and SNB are the ones buying these 15 stocks, then why cant their diverge until these CBs run out of "money" (aka When there are riots in the streets)

Wed, 11/11/2015 - 19:53 | 6779479 Xibalba

nirpnirpnirp

Wed, 11/11/2015 - 16:00 | 6778499 Boris Alatovkrap

Boris' internet connection today is very poor, no graph is show.

Wed, 11/11/2015 - 16:03 | 6778524 Sudden Debt

those pornmovies do take a lot of bandwith. You should download a download manager and set your downloads on low priority when you're surfing and higher when you're going for a piss.

Wed, 11/11/2015 - 16:03 | 6778531 2thepeople

Don't worry Boris, it's all bullish. Because it's different this time.

Wed, 11/11/2015 - 16:09 | 6778558 Boris Alatovkrap

BTFD, no?

Wed, 11/11/2015 - 16:04 | 6778533 CarpetShag

Where are you? Magnetogorsk?

Wed, 11/11/2015 - 16:08 | 6778553 Boris Alatovkrap

You are refer to city in Chelyabinsk Oblast? No that is not Boris' place of residence.

Wed, 11/11/2015 - 16:11 | 6778569 scintillator9

Everywhere is Boris.

Rates of Negative are soon come to us all.

Wed, 11/11/2015 - 16:15 | 6778580 Boris Alatovkrap

Boris is visit Magnitogorsk few year back for investigate investment opportunity. Please enjoy photographic excursion on Twitter:

http://twitter.com/borisalatovkrap

Wed, 11/11/2015 - 16:27 | 6778643 Mr. Schmilkies

is that russian aeroplane, or russian tank in pikture?

Wed, 11/11/2015 - 16:33 | 6778675 Boris Alatovkrap

Is Russian Tankplane (or is sometime call Aerotank). Proper name is K7 Heavy Bomber. Please enjoy Pictorial Essay:

http://message.snopes.com/showthread.php?t=49129

Wed, 11/11/2015 - 17:10 | 6778852 Inzidious

Wow. Is that real? That thing is big enough to make both Darth Vader and the Emperor kinda jealous.

Wed, 11/11/2015 - 17:26 | 6778933 Boris Alatovkrap

What is to say!? Soviet is like big tank, big aeroplane, so is building it big tank plane. Unfortunately for Kalinin, desgin and build plane, it is crash and kill 15 pilot and crew and Stalin is execute Kalinin. So sad.

Wed, 11/11/2015 - 21:36 | 6779898 Clycntct

Sorry Boris Clysupidsky should read further before open mouth and prove name.

Wed, 11/11/2015 - 21:26 | 6779849 Clycntct

did it ever fly? or did it just roll out and look good?

Wed, 11/11/2015 - 16:03 | 6778521 rsnoble

Sad, but in a way funny, talk of rising rates for years and then get slammed with negative rates.

Personally, I hope it happens. If nothing else just to get more people out of alignment with these jackasses and order their heads on silver platters.

Wed, 11/11/2015 - 16:03 | 6778527 CarpetShag

More technical crap purporting to predict future prices.

Wed, 11/11/2015 - 16:08 | 6778544 Dr. Engali

Bonus season is just around the corner and the bankers need to get paid. So what do you think it's going to happen?

Wed, 11/11/2015 - 16:11 | 6778565 Groundhog Day

funny i was talking to someone from Bank of america over the weekend and all he kept saying is how excited he is about the upcoming year end bonus

Wed, 11/11/2015 - 16:47 | 6778749 kralizec

Finally...booze, blow and love monkey's! The economy is saved!!!

Wed, 11/11/2015 - 16:08 | 6778554 Peter Pan

You can't expect the Plunge Protection Team/FED to be able to concentrate all their manipulation and funds at the whole market. They spend where they can get the biggest bang for their buck.

Secondly, the rest of the market is captive because they can barely bring themselves to sell when the market is sinking slowly but they wait hopefully for the market to rise.

Third, where else can they run to when the banks are getting to the stage of wanting to charge you for even storing your money?

Wed, 11/11/2015 - 17:36 | 6778979 ThisIsBob

Equities will be supported until the bloody end, because retirement accounts are broadly invested. When people start seeing their savings taking substantial hits, they might do something, but so far so good.

Wed, 11/11/2015 - 16:15 | 6778579 Yen Cross