Beating the line

The 10-day advanced/decline line, that is. A widely followed measure, this shows the ratio of advancers vs. decliners within a 10-day span to indicate the health of a move.  At a certain point where the A > D, we can enter the overbought territory. Otherwise, we’re oversold.  Here’s a chart, courtesy of Bespoke Investment Group showing the 10-day A/D line for a one-year span.

10dayADline

We can see that with the recent rally following positive earnings from companies, we are now in an overbought market.  Looking at the two other occasions wherer we’ve reached it, they were followed by significant declines.  Now, I’m interested to see whether this most recent high will be followed by a big drop.  We’re only two weeks into the earnings season and there would probably be more companies beating the earnings.  Yet we’ve also ran up so much so fast within the last 2 weeks that we might be positioning for a pullback.  The only question is, when? Will this 10-day A/D line continue going up? Or will it follow the trend it has followed in the past?

While still too early, this is how the markets are shaping up, via Bloomberg futures:

fut727

It seems like we might just break away from the conventional.

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