Advance/Decline Lines Moving Lower

Though major stock market indexes rebounded Thursday from several days of losses, an indicator that measures the performance of the broad market is quietly nearing the low it set during October’s dramatic sell-off.

The so-called advance/decline line, which compares the number of stocks that rise each day on the New York Stock Exchange against those that fall, has dropped steadily this year to the brink of its early-October low. On Tuesday, an A/D line measuring the Nasdaq market sank below its October bottom.

A downward sloping line, as plotted on a graph, indicates that on most days, more stocks fall than rise.

What’s interesting this time, however, is that the market is not nearing the end of a grueling and painfully obvious downturn, as it was in October. In fact, major indexes today depict a market that’s in fairly solid shape.

The Nasdaq composite index is 9.5% off its Feb. 1 high because of nascent slumps in big-name technology stocks. But thus far, it seems to be a normal pullback on the heels of the index’s scorching 87% rise off its Oct. 8 low.

The Dow Jones industrial average and the Standard & Poor’s 500-stock index are moving sideways in trading ranges as they consolidate gains notched late last year. The S&P; is less than 3% from its Feb. 24 peak, while the Dow is less than 2% away from its Jan. 8 high.

The bad news is well known and has been the underlying market story since last spring: Stocks of many small and mid-size companies are mired in continuing downturns while a handful of large blue-chip names have kept the indexes aloft.

The risk is that the slumping A/D line presages a deep stock market pullback as blue-chip leaders inevitably give way, a phenomenon that preceded last year’s skid in late summer and early fall.

“This shows there’s an underlying weakness in the market,” said Richard McCabe, chief technical analyst at Merrill Lynch & Co. “Usually, it’s the weak majority that drags down the strong minority.”