Slumping Market ‘Breadth’ Stirs Bears

The weakness of an important technical market indicator has some analysts worried that we may have seen the last of Dow 10,000--for a long time.

On Tuesday, the New York Stock Exchange advance/decline line--a key indicator of market “breadth”--fell to a 12-month low, slicing through the lows it reached in last fall’s market swoon.

Some technicians find it especially worrisome that the NYSE A/D line, which tracks the cumulative total of rising stocks to falling stocks, hit a 12-month low within a week of the Standard & Poor’s 500 index hitting an all-time high. That shows how a handful of big-name blue chips are masking broad market weakness, they say.

According to James B. Stack of InvesTech Research in Whitefish, Mont., the last time that happened was the summer of 1929--just before the worst crash in history.

A similar “breadth warning” came at the market top of last July, which was followed by a 19% tumble in both the Dow and the S&P;, Stack said.

Stanley C. Harley, editor of the Harley Market Letter in Camarillo, believes that the A/D-line weakness plus high stock valuations and certain cyclical indicators that he follows all point to a major market top--the end of the bull market.

Dow 10,000--reached three times last week in intra-day trading but never surpassed at a market close--will be a “15-year glass ceiling” for stocks, Harley said.

In that respect, he said, Dow 10,000 will behave much like Dow 100 and Dow 1,000, which proved such durable barriers that the market took more than 15 years to conclusively break through them.

A bit more upbeat was John R. McGinley Jr. of Technical Trends, a Wilton, Conn., newsletter. The market won’t be ready to give up the ghost until we see several days of heavy trading accompanied by a real plunge in the A/D line, with losing issues routing gainers by margins of 3 to 1 or 4 to 1, he said.

It hasn’t happened yet. Instead, McGinley said, the market seems to be gripped by “a certain amount of apathy.” But if nothing else, the A/D line’s new low is “a feather in the cap for the bears,” he said.