Whenever you read Briefing.com's Stock Ticker page for overall market conditions, you should always look at the advance/decline numbers, in addition to looking at the major market indexes. While the market indexes give an immediate sense of the direction of the overall market, the advance/decline numbers give you the best feel for the "breadth" of the market. Breadth is important for gauging the strength of index movements.

Stocks that are currently trading higher than the previous day's closing price are said to be "advancing." Conversely, stocks trading lower than the previous day's close are "declining."

The total number of all stocks advancing compared to the total number of stocks declining is the advance/decline ratio.

The advance/decline ratio is rarely quoted as an actual ratio, but is frequently referred to as a fraction, as in "Advances outnumbered declines by a 2 to 1 ratio today."

The numbers are reported separately for each exchange. NYSE numbers and Nasdaq numbers together constitute the overall market.

The advance/decline ratio is useful for determining the overall breadth of market movement. In concert with other measurements it helps give a broader picture of market moves. It is often used as a secondary indicator, after the Dow Jones Industrial Average, or Nasdaq Composite, for an overall "feel" of any particular day's action.

On days when the advancers roughly equal the decliners it "offsets" any movement in the indexes. Days where the advance/decline ratio is about 1 to 1 should be seen as neutral days regardless of the movement in the indexes.

There are many days when the Dow Jones Industrial Average increases, but the advance/decline ratio for the NYSE exchange is less than one. Because there were more declining stocks than advancing stocks, the overall market actually declined, even though the DJIA moved upward. When this happens it should really be viewed as a down day, although the conventional wisdom is to say the market "was up" on that day.

On days when the ratio is 2 to 1, with either decliners or advancers ahead, the advance/decline numbers are far more significant for judging market movements.

When the advance/decline ratio is higher than 2 to 1 the overall tone of the market is viewed more positively. In the absence of other factors a strong tone generally continues. Therefore, when advancers outnumber decliners by 2 to 1 or more, it's a very positive sign, even if the indexes show little movement. Conversely, when the closing decliners outnumber advancers 2 to 1 or higher, it's often viewed as a negative indication for the market's overall tone.

However, the advance/decline ratio does not take into account the size of an advance or decline and therefore is only partially useful as an indicator. Its primary use is as a secondary measurement on the current day's market movements.

The advance/decline numbers are particularly useful when judging the market's movements during the day. Large changes in the market indexes, without corresponding breadth as shown by the advance/decline numbers, often indicate a weakness in the trend, which then flattens out later in the day. Correspondingly, a large imbalance in the advance/decline number often presages more movements in the index.

Whenever you read Briefing.com's Stock Ticker page to check up on the market, look at the market indexes first. But check the advance/decline numbers next.