Sensex Advance Decline Divergence

The following chart shows the divergence between the Sensex and Advance/Decline ratio.

There are few things to notice:

1. Sensex has been moving upside from June onwards but the AD ratio is on continuous decline. The hike in AD ratio is caused by the Indian election results. This is the divergence which shows building up weakness in indices.

2. The sharp fall in the ratio in last 2 weeks. This kind of sharp fall generally comes in the last phase of the move.

3. As per Elliot this kind of divergences are generally seen in the 5th wave which is the elliot count of Indian indices.

4. The AD ratio is right at support area. Any further weakness can mean more downside weakness in Indices.

Also, seen on the daily charts, there is also divergence and the AD ratio is in -ive tertiary.

Time of caution.