How I Knew to Buy the Early-April Dip
Investors love to look back and say they successfully called a market top or bottom.
Most investors, of course, rarely ever pull this off.
They tend to sell when they should buy... and buy when they should sell.
Now, I'm not perfect, either. I'll never claim to know what the market is going to do next... No one can. Markets are unpredictable. And wizards aren't real, no matter how many Harry Potter fans wish it to be true.
But regular readers know that we have been spot on in recent months about our call to buy stocks after they corrected earlier this year. And today, I'm going to share why we were so confident about our outlook.
You see, one time-tested indicator gave us a massive buy signal...
I'm referring to the advance-decline (A/D) line.
Now, I've talked about this powerful tool before. But it's worth covering once again...
One of the simplest ways to gauge market health is by checking if more stocks are rising than falling. This is what the A/D line looks at.
The A/D line takes the number of stocks that went up in a given day and subtracts the number of stocks that went down. If more stocks went up, the line goes up. If more stocks went down, the line goes down.
In a typical bull market, as more stocks rise, the A/D line usually goes up. But when the A/D line moves lower while the market continues to rise, it's time to worry. This means that gains in stocks are concentrated in only a few companies.
As an example, that happened just before the dot-com bubble burst.
You can see it in the chart below. The A/D line for all stocks trading on the New York Stock Exchange ("NYSE") started to head lower in 1998 and kept dropping through 1999. Meanwhile, the S&P 500 Index kept charging higher and didn't peak until March 2000.
But by then, it was too late for investors...
It was a completely different story this year.
Back in late March and early April, the A/D line for the S&P 500 was giving us a fresh signal. Only this time, it wasn't flashing a warning... It was flashing an opportunity.
Because of President Donald Trump's tariffs, the market sold off 19% from its high in February – nearly putting us in a bear market. But the A/D line barely moved lower. You can see the wide divergence circled below...
This told us that in the short term, the S&P 500 was healthy. Most stocks in the index were posting gains. This revealed that the selling in the index was simply concentrated in a few big tech companies with lofty valuations. (The S&P 500 is market-cap weighted where the biggest companies make up most of the index.)
Today, we're seeing the A/D line right near all-time highs.
That's a massive green light for stocks to keep moving higher.
Until we start to see some weakness in the A/D line, you can continue to feel good about stocks.
And if you want to know how to take advantage of a market that's set to rise, I suggest you check out my friend Marc Chaikin's Power Gauge.
This one-of-a-kind system uses 20 different factors to assign more than 5,000 stocks and 2,300 exchange-traded funds with a rating from "very bearish" to "very bullish." The factors include free cash flow, earnings consistency, price strength, and the all-important Chaikin Money Flow indicator (which tells you what the "smart money" on Wall Street is doing).
The Power Gauge is easy to use, and all you have to do is type in a ticker to get an instant rating. Best of all, Marc just added a new filter measuring "earnings quality." With this tool, you can see which companies have reliable earnings and which are using accounting tricks to inflate their results.
Get all the details here.
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Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
June 25, 2025
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