Market Breadth: Part III — Market Breadth — GCC Market Analytics
Market Breadth: Part III | GCC Market Analytics

Tuesday, 7 September 2010

Market Breadth: Part III

In Part I and Part II of the series on market breadth I introduced the advance/decline indicator and showed how it could be applied to GCC markets to identify upcoming bullish and bearish price action.

In this post I want to introduce a new study based on the advance/decline indicator which I'll update on a weekly basis.  Here's an example of the study for the Kuwait market:

The chart shows the last 100 days activity for the advance/decline indicator and corresponding market index.  The solid green and red areas are the 10-day advance/decline indicator.  Where the indicator is above the zero level (green area) a higher number of stocks are rising in price than falling.  Where the indicator is below the zero level (red area) a higher number of stocks are falling in price than rising.

The dotted line highlights the current advance/decline indicator level which in the chart above is about -5%.  Also overlayed on the chart (dark shaded line) is the last 100 days price activity for the market index, in this case the Kuwait Index.  There is no price axis for the market index but I have highlighted the most recent closing value.

The last post showed that when the 10-day advance/decline indicator was positive this had a strong historical tendency to correspond with a rising market.  On the other hand, when the indicator was negative this tended to correspond with a falling market.  For the Kuwait market you can see the advance/decline indicator is currently negative (as of market close 5th Sept.) which, historically, has tended to be bearish for future market price activity.

Over the coming holiday weekend I'll post up-to-date advance/decline studies for all GCC markets.