Q: Arthur, can you explain the difference between the A/D Ratio and the A/D Volume Ratio? How do they relate to advancing issues minus declining issues? Also, why do you use a 5 day moving average? It seems that the Nasdaq Composite ($COMPQ) rolls over when the 5 dma approaches 1.5 on the AD Ratio. Similarly the NYSE ($NYA) rolls over when the 5 dma approaches 1.5 to 2. At least since October that seems to be the case.

A: The Advance/Decline Ratio equals the number of advancing issues divided by the number of declining issues. On a typical day, the NYSE may have 1250 declines and 1650 advances. This would compute an Advance/Decline Ratio of 1.32 (1650/1250), which is above 1 and relatively bullish. Conversely, 1650 declines and 1250 advances would make for an Advance/Decline Ratio of .76 (1250/1650), which is below one and relatively bearish.

The Advance/Decline Volume Ratio equals the volume in all advancing issues divided by the volume in all declining issues. On a typical day, the NYSE may trade 700 million shares in advancing issues and 400 million shares in declining issues. Such a day would compute an Advance/Decline Volume Ratio of 1.75 (700/400). Conversely, a day with 400 million shares volume in advancing issues and 700 million in declining issues would make for an Advance/Decline Volume Ratio of .57 (400/700), which is below one and relatively bearish. Total NYSE volume would be the sum of advancing volume plus declining volume plus unchanged volume.

The TRIN combines these two indicators by dividing Advance/Decline Ratio by the Advance/Decline Volume Ratio. The bigger the Advance/Decline Volume Ratio (denominator) relative to the Advance/Decline Ratio (numerator), the smaller the number (and more bullish). A TRIN below 1 suggests more volume flowing into advancing issues relative to declining issues. A TRIN above 1 suggests more volume flowing into declining issues relative to advancing issues. (See this Chart School article for more on TRIN.)

I use the 5-day simple moving average because it represents one week. Which moving average to use will depend on your trading style, goals and timeframe. Generally, when the 5-day simple moving averages for the Advance/Decline Ratio and Advance/Decline Volume Ratio are above 1, I view it as bullish. Below 1 is viewed as bearish. Conversely, when the 5-day simple moving average of the TRIN is above 1, I view it as bearish. Below 1 is viewed as bullish. Note that the TRIN sometimes comes with an inverted scale (as on the daily Chart Update) to reflect this inverse relationship.

Cheers,
Arthur Hill

Q: Suppose I have identified an index (say, $OSX) that I like. How do I go about finding the stocks that are part of that index so that I can identify which stock I want to buy?
Q: Does your site provide any information as to which industries belong to these sectors? If not, do you know where I could get this information?
Q: How is it possible for me to find out what stock components make up the listed US industry groups? For example, what stocks make up the Bank Index ($BKX)? When I find a sector that looks atractive it would be nice to click on a link that takes you to a list of stocks that are part of that industry group.

A: Good places to look for this information would be the website for the stock exchange or company that publishes a particular index or listing. We also have some links in the glossary terms for various indices or SPDRs, but as we've added so many symbols, it's tough to keep up!

The S&P 500, 400 and 600 lists are grouped by industry, which makes for a real treat:

• S&P 500 LargeCap
• S&P 400 MidCap
• S&P 600 SmallCap

The Amex website has information on their indices for options trading, including $DRG, $NWX and $SOX.

Listings for the Holders, iShares and Sector SPDRs traded on the Amex is on the Nasdaq website.

The Philadelphia Stock Exchange publishes sector indices like $SOX and $XAU.

Hope this helps!
Arthur Hill