The Advance-Decline Line (A/D Line) is calculated by adding each day's net advance count — the number of stocks that advanced minus the number that declined — to a running cumulative total. The result is a line that rises when more stocks go up than down and falls when more stocks go down than up.
Its primary value is confirming or questioning index moves. When the index rises to new highs while the A/D Line fails to reach new highs — or is declining outright — it signals breadth deterioration: the index's gains are being carried by a shrinking number of large stocks. This negative divergence is one of the more historically reliable early warnings of a market peak.
The reverse (positive divergence) also occurs: an index making new lows while the A/D Line holds above its prior low can signal that the broad market is absorbing the selloff better than the headline number suggests, sometimes preceding a recovery. The A/D Line is most meaningful when watched in the context of multi-month trends, not day-to-day moves.