Essentially, what we look for when it comes to this measure is whether it confirms what is going on in the actual movement of the S&P 500. When both the A/D line and the market rise together, it confirms that a lot of stocks are participating in the rally; this is healthy, and bullish. If, however, the market is rallying when the A/D line is lagging, this reflects a lack of participation in the rally, and that tends to signal the rally is running out of steam.
The same is true in the other direction. If the S&P 500 and its advance/decline line are falling in tandem, this shows a bulk of stocks are indeed involved in the decline ... and the decline has more room to go. In another scenario, if the market is declining and the A/D line is not falling to the same degree, that divergence indicates the sell-off is growing tired and a bounce should be in store. Most recently, a bullish divergence has developed between the two.
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