Business, Legal & Accounting Glossary
Market indicator that calculates the level of volatility in the market. This does not factor in price direction. ABI is typically calculated using the New York Stock Exchange, but can use any exchange or exchange subset in making the determination. Classified as a breadth indicator.
The Absolute Breadth Index (ABI) is a market activity indicator developed by Norman G. Fosback. The ABI is used to determine market volatility levels by showing how much activity, volatility, and change is taking place on the New York Stock Exchange without considering price direction. High ABI readings indicate market activity and change, while low readings indicate inactivity or lack of change.
The Absolute Breadth Index is calculated by taking the absolute value of the difference between the number of advancing issues and the number of declining issues.
ABI = Absolute Value(#Advances – #Declines)
where:
The number of stocks trading on a particular market varies over time. Thus there is no consistent maximum or high value. Peaks in the indicator are more easily spotted in hindsight than in real-time.
Typically, large numbers suggest volatility is increasing, which is likely to cause significant changes in stock prices in the coming weeks. In the book Stock Market Logic, Fosback indicates that high values of ABI often lead to higher prices three to twelve months later.
Fosback also found that a highly reliable variation of the ABI could be determined by calculating the ten-week moving average of weekly ABI divided by the total issues traded. Readings above 40% are considered to be bullish and readings below 15% are bearish.
Not all charting sites support advancing and declining issues.
ABI
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This glossary post was last updated: 19th November, 2021 | 0 Views.