Ask Colin

Over what length of period can you apply the divergence principle to the advance decline line and the index?

It can most certainly be used in the short term, but will in most cases only be giving short term signals.

While others may disagree, I think it can also be used in the longer term, but with one most important caveat. This is that the Advance-decline line seems to have a long term downward bias. many have observed this. I do not understand why it is so, but it does seem to be there.

What the bias means is that:

1. We can use it within a given bull market, but not between the tops of one bull market and the next.

2. If a given bull market is very protracted, we need to have a very clear divergence - a minor divergence that may be due to the downward bias should be treated with extreme caution.