All Ords Cumulative AD Line not making sense to me

[lockscombi]

Hey all

Can someone help me understand this indicator please? In Stan's Weinstein's book he suggests that this indicator should decline before the overall market declines. Conversely, It will ascend before the overall market does.

I am current comparing the #XAOAD (All Ords Cumulative Advance - Decline Line to the XAO (All ords index).

I do see the ADLine decline before the GFC which is awesome BUT then I see it continually to decline during the market uptrend since 2009! This seems strange after reading what Stan said

Am i reading this wrong? Is this comparison not usable with the small ASX market?

Any help would be greatly appreciated..

Here's a pic of the All Ords Cumulative ADLine..

 

[lockscombi]

Re: All Ords Cumulative ADLine not making sense to me..

Could it be that the ASX Top 50 companies heavily weights this indicator due to overall market cap?

I just realised looking at the S&P/ASX 50 Cumulative Advance- Decline Line that this is the opposite of all ords ADLine... The ASX 50 ADLine is clearly trending upwards since 2012..

 

[skyQuake]

Re: All Ords Cumulative ADLine not making sense to me..

Could it be that the ASX Top 50 companies heavily weights this indicator due to overall market cap?

I just realised looking at the S&P/ASX 50 Cumulative Advance- Decline Line that this is the opposite of all ords ADLine... The ASX 50 ADLine is clearly trending upwards since 2012..

AD Line should be just net Advancers - decliners, weight should not factor into it. All ords might be too broad (500 stocks) with a random 5c stock ticking up/down influencing the A/D line

 

[skc]

Re: All Ords Cumulative ADLine not making sense to me..

Could it be that the ASX Top 50 companies heavily weights this indicator due to overall market cap?

I just realised looking at the S&P/ASX 50 Cumulative Advance- Decline Line that this is the opposite of all ords ADLine... The ASX 50 ADLine is clearly trending upwards since 2012..

As SkyQ said, the ADLine is not weighted, but the index certainly is.

So you can have a handful of stocks doing the heavy lifting on the index while the smaller companies in decline... and you will see a rising XAO vs a falling ADLine.

I think that was the case for a few years after GFC, when the small caps underperformed for some period.

Perhaps the ASX200 ADLine would be a good compromise between ASX50 (too top heavy) and XAO (too broad).

 

[lockscombi]

Ah yes I understand now

Thanks!