The Message of the Tape

The message of the market, in its various forms, can be read by anyone willing to look. Market internals, or participation within the tape, is yet another method to assess the ‘strength’ of a trend. The trend in ADN(E) and ADV(E), measures number and volume of the participation within the trend, can be used to gauge the internal strength of the trend. For example, new highs or lows in participation relative to price suggest an accumulation of trend energy. This accumulation often precedes breakouts in price.

There's an old saying in my trading book,

"The tape is strong when the soldiers lead the generals." Conversely, "the tape is weak when the generals lead the soldiers."

In other words, when the tape reflects broad participation (soldiers lead the generals), as reflected by new highs in AND(E) today, the trend is displaying growing internal energy. While price remains well below the 2007 highs, it does so while ADN(E) has been recording new highs. In other words, the tape (the soldiers lead the generals) continues to reflect growing trend energy. Growing trend energy tends to manifest itself in price eventually.

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