Education / Indicators / ABSOLUTE BREADTH INDEX

The Absolute Breadth Index ("ABI") is a market momentum indicator that was developed by Norman G. Fosback. The ABI shows how much activity, volatility, and change is taking place on the New York Stock Exchange while ignoring the direction prices are headed. The Absolute Breadth Index (AKA "ABI") - a market momentum indicator developed by Norman Fosback. The ABI shows how much activity, volatility, and change is taking place while paying no attention to the direction prices are actually heading. This makes it a kind of "activity index." High readings mean markets are active, and change is happening, while low readings mean lack of change - nothing going on here bud. From a day trading perspective, it is difficult to see how it could be useful except as part of a package of indicators trying to predict future direction, and as we know, predicting market futures is impossible.

Historically, high values typically lead to higher prices three to twelve months later. Fosback found that a highly reliable variation of the ABI is to divide the weekly ABI by the total issues traded. A ten-week moving average of this value is then calculated. Readings above 40% are very bullish and readings below 15% are bearish.

Calculation

The Absolute Breadth Index is calculated by taking the absolute value of the difference between NYSE Advancing Issues and NYSE Declining Issues. Absolute value (i.e., ABS) means "regardless of sign." Thus, the absolute value of -100 is 100 and the absolute value of +100 is also 100