One of the internal signals that we can use to spot weakness is the trend of the advance/decline information. The advance/decline line measures the difference between the number of advancing minus the decliners on each day. When more stocks decline, the chart goes lower. When the market is climbing the advancers are outpacing the number of declining issues. On the chart below, I have shown the data two different ways. The center panel is an 11-period moving average of the information, which takes out the wild swings. This method is referred to as a smoothing mechanism. Notice how the peaks on the center panel were declining as we approached the end of July. While the information that the chart is weakening is helpful, it was similar to May. This can be a nice tool to help see when the market is losing strength.
The lower panel has a lot more information. The chart as shown accumulates the total change each day and adds it to the previous total the day before. We can see the chart trends up and then breaks lower during corrections. The second unique piece of information is that each high is lower than the prior high since September. This negative divergence while the market is going higher is worrisome. We can see this on the Nasdaq related data on this chart.
However, the NYSE chart below is different.
For the New York Stock Exchange composite, the chart below displays the advance/decline information. While the information is displayed similarly, there is one unique difference. On the chart below, the lower panel advance/decline data is making higher highs, but the stock market is not higher since September. This chart is the exact opposite with the stock market lower and the advance/decline cumulative line is higher. The solid red trend line broke at the same time as the Nasdaq a/d trend line. The dotted line is another trend line that broke this week, but the line is a best fit line that touches four points and ignored the final low of May.
Both charts point to the continuation of the current down trend. Until the market can start generating more advancers than decliners, the market is going to have trouble.