Is the Advance-Decline Ratio Overheated?

The Advance-Decline Ratio is a technical indicator used to judge the overall market's "overheated" or "oversold" status.
It is a convenient tool that allows you to visualize whether the stock market is overheated or cooling down using numerical values.

Below, I will explain in detail the guidelines and judgment criteria for each numerical level of the Advance-Decline Ratio.

■ What is the Advance-Decline Ratio?

The Advance-Decline Ratio is calculated using the following formula:

Advance-Decline Ratio (%)
= (Total number of advancing stocks over a certain past period ÷ Total number of declining stocks) × 100 (%)

The most common one is the "25-day Advance-Decline Ratio (using the total for 25 days)."

■ Guidelines and Evaluation of the Advance-Decline Ratio

・Below 70%: Oversold
The market is extremely pessimistic
Possibility of a rebound; consider buying on dips

・70–90%: Weak
Adjustment/stagnation phase
Avoid forced buying; a wait-and-see approach is safer

・90–110%: Neutral/Normal
The market is stable and within a normal range
Trend-following strategies are effective

・110–130%: Slightly Overheated
An optimistic atmosphere is spreading
Short-term caution is necessary; consider position adjustments

・130% or higher: Overheated Zone
A state where speculative buying is accelerating
A time to consider taking profits or partial withdrawal

・150% or higher: Abnormally Overheated
A bubble-like accelerating market
High risk of a sharp drop; caution required

■ At what point is it judged as "overheated"?

・When the Advance-Decline Ratio exceeds 120–130%, it is considered "slightly overheated," and
・if it stays above 130%, it is strongly recognized as a level where the market is overheated.

→ In this state, it is common to assume that short-term profit-taking or adjustments are likely to occur.

■ Points for utilizing the Advance-Decline Ratio

・Often used as a contrarian indicator (Overheated → Sell, Cooling → Buy)
・However, there are many false signals in trending markets that continue to move in one direction, so it is recommended to use it in combination with other indicators (RSI, Moving Average Deviation Rate, Trading Volume)
・By looking at it alongside price indices like the Nikkei 225 or TOPIX, it can provide hints to discern the essential "strength or weakness" of the market

■ Points of Caution

・"High Advance-Decline Ratio" does not necessarily mean "it will definitely go down"
・During an uptrend, it may stay above 130% for a while (= overheating continues)
・It can also move significantly in the short term due to supply and demand from large investors or events (Bank of Japan policy, earnings, employment statistics)

■ Summary

[Guidelines for Overheating in the Advance-Decline Ratio]

・Over 110% → Slight sense of overheating
・Over 120% → Entering the caution zone
・Over 130% → Clearly overheated, watch for short-term corrections
・Over 150% → Overheating peak, high probability of a pullback

[Disclaimer]

This article is created for general information purposes only and does not recommend or solicit the buying or selling of any specific stock or investment method.

While the content is based on information deemed reliable, we do not guarantee its accuracy or completeness. The opinions and views expressed are those at the time of writing and do not guarantee future market trends or price fluctuations.

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