The most direct way to identify the market’s trend is to analyze price, but price doesn’t always tell the whole story. Another measure of the market’s strength or weakness is the number of stocks posting gains or losses. For example, if the S&P 500 index is trending higher but 400 of its 500 stocks are in the negative column, that trend may not be as strong as it seems.

This study focuses on a simple version of the advance-decline line that subtracts the number of declining stocks from the number of advancing stocks each day. The idea is to pinpoint levels at which gainers outnumber losers (and vice versa) by a wide margin — e.g., what happens to the market after twice as many stocks post gains than losses?