T2101 - Absolute Breadth Index
The Absolute Breadth Index was developed by Norman Fosback. It is calculated by taking the absolute value of the number of advancing issues minus the number of declining issues. For example, if the number of advancing issues is 1200 and the number of declining issues is 600, the Absolute Breadth Index equals 600. If the number of advancing issues is 400, and the number of declining issues is 900, the Absolute Breadth Index equals 500. Remember, the sign is ignored in the calculation of an absolute number.
The 2101 indicator is calculated a bit differently. It uses the absolute value of the advances minus declines on the NYSE for the last 5 days, divided by the total number of NYSE stocks. This is multiplied by 100 to get a percentage.
The theory behind the Index is that when the absolute difference between the number of advancing and declining stocks is high, you are more likely to be near a market bottom than a top since a selling climax, with most stocks participating, often occurs near a market bottom. On the other hand, a low Absolute Breadth Index reading is more likely to signify the slow topping activity that frequently occurs at a market peak.