It’s difficult for a stock market to roll over into a meaningful correction, let alone a bear market, when more and more stocks keep pushing higher.
Expanding breadth and rising participation are not features of weakening markets. They are what strength actually looks like under the hood.
That’s why it’s hard to take collapse narratives too seriously when the data keeps moving in the opposite direction.
This week, the NYSE Advance-Decline Line once again pushed to new all-time highs, signaling that upside participation continues to broaden, not deteriorate.
The NYSE Advance-Decline Line is one of the clearest measures of market breadth we have. It tracks a cumulative running total of advancing stocks minus declining stocks on the New York Stock Exchange.
Each trading day adds the net number of advancers to the prior reading, allowing us to see whether participation across the market is expanding or quietly rolling over.
Right now, it’s doing the former.
Here’s the NYSE Advance-Decline Line closing yesterday at the highest levels in history:
And historically, that matters. A lot.
Before we talk about what this means today, it’s worth looking at what actually happens around major market peaks, and how the Advance-Decline Line has behaved ahead of past corrections and bear markets.
Because this is not what those environments look like
What Does History Say?
During bull markets, a common pushback to bullish evidence is a reminder of past market peaks. The argument is usually the same: that this looks just like the top before the last big decline.
So let’s walk through a few of the usual comparisons.
Ahead of the Great Financial Crisis, the NYSE Advance-Decline Line was already breaking down well before prices followed.
The A-D line peaked in early June 2007 and was in a clear downtrend by the time the S&P 500 finally topped in mid-October, more than four months later.
The same pattern showed up before the 2022 bear market. The A-D Line made its high in June 2021, briefly retested that level in November, and then failed decisively.
By the time the S&P 500 peaked in January 2022, breadth had already rolled over and was pulling the market lower.
You saw a similar setup ahead of the COVID crash. The A-D line peaked in January, well over a month before the S&P 500 and the rest of the market collapsed.
Even last year’s spring correction, the so-called “Tariff Tantrum,” followed the same script.
The NYSE Advance-Decline Line peaked the prior November. When the S&P 500 finally topped in late February, breadth had already been diverging in a meaningful way.
Now contrast that with today.
Again, for perspective, the NYSE Advance-Decline Line hit a new all-time high yesterday.
5 Months Prior to Peak
According to Ari Wald, Head of Technical Analysis at Oppenheimer, the median gap between a peak in the Advance-Decline Line and a peak in the S&P 500 has been about five months.
In other words, when breadth rolls over, price usually doesn’t respond immediately.
There’s typically a window where divergences develop and persist before the major indexes finally recognize the shift in regime and follow the A-D line lower.
Looking back to 1950, the Advance-Decline Line peaked ahead of the S&P 500 in 12 of the 18 major market tops.
In the six cases where breadth did not peak first, the declines that followed were either shallow or short-lived:
Ari is one of the best technicians in the business and a friend of ours here at TrendLabs. We’ll have to get him into one of our Friday Lab Training sessions soon to walk through this work in more detail.
But the bottom line is simple. The most damaging bear markets and corrections tend to come after a clear warning from the NYSE Advance-Decline Line.
And it just hit new all-time highs yesterday.
Why the New York Stock Exchange?
One of the most common questions I get is why focus on the NYSE as the breadth universe. Why not the S&P 500 or something else?
The answer is simple. The stocks that trade on the New York Stock Exchange represent the most important companies in the world.
This is not a U.S.-only universe. Many of the largest global corporations, headquartered outside the United States, trade directly on the NYSE.
That gives you exposure to a much broader mix of sectors and industry groups, with far more cyclical representation than narrower universes like the Nasdaq or even the S&P 500.
Industrials, financials, materials, energy and global multinationals all play a much larger role.
Names like Taiwan Semiconductor (TSM), Alibaba (BABA), Toyota Motor (TM), HSBC (HSBC), Astrazeneca (AZN), SAP (SAP), Novo Nordisk (NVO), Unilever (UL), Accenture (ACN), UBS (UBS), Sony (SONY), Rio Tinto (RIO), Anheuser-Busch InBev (BUD) and so many more trade right on the New York Stock Exchange.
This strength is not isolated to just one corner of the market.
Remember, the S&P 500 also has its own Advance-Decline Line, and it closed at a new all-time high yesterday. The Mid-Cap 400 Advance-Decline Line just did the same. Even the Small-Cap 600 A-D Line pushed to new 52-week highs.
That’s not what a market on the verge of collapse looks like.
That’s what expanding participation looks like.
More stocks are going up. Across more indexes. In more parts of the market.
Until that changes, the burden of proof is not on the bulls.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs