This Would Start A Period Of Divergence Between The Two Yardsticks That Would Ultimately Lead To A Bear Market.

<img src="” width=’250px’ align=’left’ /> The average stock can no longer match the highs set by the Dow Jones Industrial Average /quotes/zigman/627449/realtime DJIA -0.16% or the S&P 500 Index /quotes/zigman/3870025/realtime SPX -0.17% ; and 2. no dataInterest-rate-sensitive issues diverge from the higher highs posted by the Dow Industrials or the S&P 500. The best gauge of the average stock may be the daily New York Stock Exchange advance-decline, or A-D, line. Historically, when the A-D line is unable to confirm new highs in the blue-chip averages for at least several months, it is usually a sign that the market’s foundation is unstable. This is especially true in a mature bull market when the central bank is tightening the money supply and short-term rates are rising. As the chart below shows, the recent high in the S&P 500 was confirmed by a high in the A-D line. This means the broad market is in gear with the blue-chip indices. Thus, stocks have essentially bought themselves some time before an inevitable rotation into larger companies renders the A-D line unable to keep pace with the S&P 500. This would start a period of divergence between the two yardsticks that would ultimately lead to a bear market. TradeStation Technologies, 2001-2016 Click here for a larger version of this chart. The other reliable long-term signpost of market direction, interest-rate-sensitive issues, has outperformed the S&P 500 since the summer.

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