Referred to as a market momentum indicator, the absolute breadth index (ABI) is equal to the absolute value of the difference between the advancing issues and the declining issues. It shows how much activity and volatility and change is taking place on the NYSE while ignoring the direction prices are going. It shows only market activity. Developed by Norman G. Fosback. In Fosback’s book, Stock Market Logic, he states that historically, high values typically lead to higher prices three to twelve months later. He found that a highly reliable variation of the ABI is to divide the weekly ABI by the total issues traded. A ten-week moving average of this value is then defined. Readings above 40% are very bullish and readings below 15% are bearish.
Chart courtesy of Prophet Financial Systems