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PUBLIC: These highs not likely the last highs

One of my favorite indicators I’ve learned over the years is the Advance/Decline line vs. Market Price.  If you look back through history, there is hardly any market top of significance that doesn’t have a strong tell of the A/D Line NOT making a new high when the general stock market makes a new high.  In market technician jargon, this is called a “negative divergence.”  Since we have markets at a new high AND the A/D line is at a new high, sometime in the future I would expect the A/D line to NOT make a new high while the market does.  Therefore, I can confidently (95% level) state that I will expect the next “drop” in the market will return to make a new high, so buying the dip makes a lot of sense.  Now, will the next high have confirmation from the A/D line?  We’ll see.

Here is a link to a chart in StockCharts that shows both the S&P500 and the A/D line.  Feel free to use it

  1. kevin
    kevin December 10, 2016

    so buying the dip refers to the previous comment where you said 211 spy( if i am correct) or is it any drop of significance

    • Dr. J
      Dr. J December 10, 2016

      In a perfect world you get to buy below 211 SPY, but given this signal, it is safe to say that 225+ is going to get visited again in the future after a dip of some moderate to decent size (to reset the A/D line lower) so any dip gives you the opportunity to scale into a position. I personally wouldn’t buy 223 SPY knowing that 225+ is a pretty good bet in the future, but any reasonable return looking at 225+ as your future goal would be the dip I’m looking to buy.

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