Term: ADVANCE/DECLINE RATIO

This is a refinement of the net advance/decline line (Net A/D), calculated by dividing the difference between the total number of shares up and the total number of shares down by the total number of active shares on a particular trading day. The objective of this ratio is to determine whether more shares are moving up than down within a given sector or vice versa. The weakness in this type of analysis is that the relative size of the various shares and the extent of their various moves is not taken into account. Thus, a small downward movement on a very small company with a low market capitalization can negate a large move on a very substantial share like Sasol. The ShareFriend Pro software supplies net advance/decline lines for the following ten JSE sectors – basic materials, consumer goods, consumer services, financials, health care, industrials, oil & gas, overall, technology and telecommunications. These Net A/D charts can also usefully be compared with the indexes of the same sectors using a comparative relative strength indicator. For example, consider this comparative relative strength of the JSE financials index against the Net A/D for the same sector:

Advance/Decline Ratio

Advance/Decline Ratio

What this shows is that since March 2009, when the current bull market began, the Net A/D of the financials sector has under-performed the JSE Financials index – and continues to do so. This means that over the term of this bull trend the larger financial shares, which are weighted for their size in the JSE Financials index, have out-performed the smaller financials which carry an equal weight in the Net A/D of the same sector.

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