Applying A/D Indicator to PSEi and Stocks in My Watch List

What is the A/D indicator? What does it tell us?

In this article from Investopedia, here are the key takeaways you can learn from the A/D indicator: 

1. A/D uses volume and price to determine whether a stock is being accumulated or distributed.

2. How will you know that the volume and price indicate either accumulation or distribution?

3. When the price is rising but A/D is falling, it suggests that there is not enough accumulation or there is a selling pressure or distribution going on. This indicates that a possible decline or price reversal is approaching.

4. On the other hand, when the price is falling but A/D is rising, it suggests that there is an ongoing accumulation or a buying pressure and a potential price reversal to the upside is coming.

5. Another way of describing the relationship between volume and price as indicated by A/D is that this indicator shows the influence of supply and demand on price movement.

6. Moreover, A/D is an indicator to identify divergence between the price of the stock and volume. As such, this indicator helps identify the trend, its strength, and potential reversal.

7. Ideally, a rising price should be accompanied by a rising A/D to indicate a confirmed uptrend whereas a falling price accompanied by a falling A/D indicates the continuation of a decline.

8. When the price closes near the high and has a high volume also, A/D will have a big jump.

9. However, if either the price closes near the high but the volume is low or the volume is high but the price closes near the low, A/D will not move as much.

10. A/D as an indicator for a forthcoming reversal requires the use of the chart itself. On its own, it is not that reliable for anomalies in price action happen most of the time such as a gap down with large volume but closing near the high. In such cases, the indicator gives a false signal of an uptrend while in reality, the stock has gapped down.

If we will apply the above insights to PSEi, this tells us that though the price of PSEi dropped 2.94% last Friday, its A/D is still up but showing weakness. Could this indicate a resumption of a decline?

In the case of $PHES, the A/D indicator shows that both the volume and the price are moving in the same direction. We still need to wait for a divergence to indicate a potential reversal. 

How about $LODE? This stock too based on its A/D, both the price and the volume are moving down. 

How about the two gold stocks, $PX and $APX? Both their A/D are flat at the low. Based on the relationship between volume and price movement, these two stocks are more positive. The only difference is that $PX price is consolidating at the middle of its price range while $APX is still in a downtrend. A potential divergence could appear any time soon. 

Among the stocks in my watch list, based on the A/D indicator, $RCI & $FRUIT are the most promising. Though their prices are still in decline, their A/D indicators are consolidating to the upside.  

Lastly, let us take a look @ $BHI. If its A/D indicator is really reliable, it shows a divergence between its rising price and its falling A/D line. This suggests that there is not enough accumulation to support its price increase. There is a selling pressure or distribution going on. A possible decline or price reversal is approaching.

So based on the above analysis of the A/D indicator, as a trader, I would avoid index stocks, for now, wait for $PHES and $LODE to stop falling, wait for $PX and $APX for its A/D line to start moving upward, look for an entry point to both $RCI & $FRUIT, and avoid $BHI.